The distortionary effects of tariff exemptions in Argentina

Faezeh S. Foroutan

No 388, Policy Research Working Paper Series from The World Bank

Abstract: Tariff exemptions for exporters are widely used by many countries as an instrument for providing export incentives. This author argues that when tariff exemptions are granted as a means of industrial regional promotion to an industry independently of its export performance, the tariff exemptions lose their potential as an export promotion instrument. The case of Argentina is of interest because it exemplifies the practice of many developing countries. A simple model is used to show that the indiscriminate use of duty exemptions has several undesirable effects : 1) duty exemptions deprive the government of revenues; 2) the more widespread the exemption, the less effective they become as an instrument for export promotion; 3) exemptions widen the variability of effective protection rates of industries in relation to their capital intensity; and 4) exemptions increase the demand for imports more than an export subsidy does, because output in the competing input industry contracts.

Keywords: Free Trade; Environmental Economics&Policies; Economic Theory&Research; Consumption; Export Competitiveness (search for similar items in EconPapers)
Date: 1990-03-31
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:388

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