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Trade and Tax Reforms in a Cash-in-Advance Economy

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  • Theodore Palivos

    ()
    (Department of Economics, University of Macedonia, Salonica 540 06, Greece)

  • Nikos Tsakiris

    ()
    (Department of Economics, University of Ioannina, Ioannina 451 10, Greece)

Abstract

We examine the effects of both tariff-only and coordinated trade-tax reforms on market access, government revenue, and welfare for a small monetary economy, under the assumption that a certain fraction of purchases of each good must be financed with cash held in advance. We show that if the cash requirement ratio in the exportable sector is greater than that in the importable, then, contrary to previous results, (i) a uniform radial reduction of tariffs has ambiguous effects on both welfare and market access, (ii) tariff and consumption tax reforms that leave consumer prices unchanged may be more efficient in improving market access and welfare than a reform that involves only tariffs, and (iii) export and production tax reforms that keep producer prices unchanged may be welfare deteriorating.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 77 (2011)
Issue (Month): 4 (April)
Pages: 1014-1032

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Handle: RePEc:sej:ancoec:v:77:4:y:2011:p:1014-1032

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  1. Emran, M. Shahe, 2005. "Revenue-increasing and welfare-enhancing reform of taxes on exports," Journal of Development Economics, Elsevier, vol. 77(1), pages 277-292, June.
  2. Chi-Chur Chao & Chong Yip, 2000. "Urban unemployment and optimal trade policy in a cash-in-advance economy," Journal of Economics, Springer, vol. 71(1), pages 59-77, February.
  3. Theodore Palivos & Chong K. Yip, 1997. "The Gains from Trade for a Monetary Economy Once Again," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 208-23, February.
  4. Chin, Chi-Ting & Guo, Jang-Ting & Lai, Ching-Chong, 2009. "Macroeconomic (in)stability under real interest rate targeting," Journal of Economic Dynamics and Control, Elsevier, vol. 33(9), pages 1631-1638, September.
  5. Rod Falvey & Udo Kreickemeier, . "Tariff Reforms with Rigid Wages," Discussion Papers 07/29, University of Nottingham, GEP.
  6. Hatta, Tatsuo, 1977. "A Recommendation for a Better Tariff Structure," Econometrica, Econometric Society, vol. 45(8), pages 1859-69, November.
  7. Emran, M. Shahe & Stiglitz, Joseph E., 2005. "On selective indirect tax reform in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 599-623, April.
  8. Michael Keen & Johanna Elisabeth Ligthart, 1999. "Coordinating Tariff Reduction and Domestic Tax Reform," IMF Working Papers 99/93, International Monetary Fund.
  9. Hatzipanayotou, Panos & Michael, Michael S. & Miller, Stephen M., 1994. "Win-win indirect tax reform : A modest proposal," Economics Letters, Elsevier, vol. 44(1-2), pages 147-151.
  10. Chao, Chi-Chur & Yu, Eden S. H., 1999. "Shadow prices and trade restrictions in a monetary economy," Journal of Macroeconomics, Elsevier, vol. 21(4), pages 755-764.
  11. Theodore Palivos & Chong K. Yip, 2006. "Optimal Intervention Policies for a Small Monetary Economy," Departmental Working Papers _178, Chinese University of Hong Kong, Department of Economics.
  12. Hatta, Tatsuo, 1977. "A Theory of Piecemeal Policy Recommendations," Review of Economic Studies, Wiley Blackwell, vol. 44(1), pages 1-21, February.
  13. Chi-Chur Chao & Chong Yip, 2001. "Non-traded goods and optimal trade policy in a cash-in-advance economy," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 10(1), pages 23-37.
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