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Pareto-improving tariff-tax reforms under imperfect competition

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  • Fujiwara, Kenji

Abstract

Constructing a duopoly model with non-constant marginal costs and a strict Pareto criterion, this paper examines welfare effects of world-price-fixing tariff reductions accompanied by adjustments of a domestic tax. If a destination-based consumption tax is used, this reform achieves a strict Pareto improvement under sufficiently decreasing marginal costs. If, in contrast, an origin-based production tax is employed, a strict Pareto improvement holds whether marginal cost is decreasing or not. Thus, we can conclude that tariff-tax reforms that improve the world welfare and are irrelevant of tax bases are possible if the targeted industry exhibits sufficiently decreasing marginal costs.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 31 (2014)
Issue (Month): C ()
Pages: 12-20

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Handle: RePEc:eee:reveco:v:31:y:2014:i:c:p:12-20

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Web page: http://www.elsevier.com/locate/inca/620165

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Keywords: Tariff-tax reform; Destination principle; Origin principle; Strict Pareto improvement/deterioration; Duopoly;

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