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On the Rationale for the Use of Border Taxes in Developing Countries

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Author Info

  • Knud Jørgen Munk

    ()
    (School of Economics and Management, University of Aarhus, Denmark)

Abstract

With reference to the size of the informal sector, Stiglitz (2003) argues that border taxes are superior to VAT in certain developing countries. By way of a quantitative example this paper shows that, while Stiglitz’ claim is probably will turn out to be correct, a large informal sector is not a sufficient condition for border taxes to be preferable to a VAT regime as shown by Keen (2006). Making the case for using border taxes also requires the plausible supplementary assumptions that (i) border taxes are associated with lower administrative costs, and (ii) that this difference is sufficiently large to justify the larger distortionary costs associated with border taxes compared to domestic taxes.

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File URL: ftp://ftp.econ.au.dk/afn/wp/06/wp06_12.pdf
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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2006-12.

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Length: 11
Date of creation: 30 Dec 2006
Date of revision:
Handle: RePEc:aah:aarhec:2006-12

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Optimal trade policy; VAT; tax-tariff reform; costs of tax administration; informal sector; developing countries;

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References

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  1. Jakob Roland Munch & Michael Rosholm & Michael Svarer, 2006. "Home Ownership, Job Duration, and Wages," Economics Working Papers 2006-06, School of Economics and Management, University of Aarhus.
  2. Francesco Busato & Enrico Marchetti, 2009. "Skills, sunspots and cycles," Journal of Economics, Springer, vol. 97(3), pages 189-215, July.
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Cited by:
  1. Ronald Davies & Louren Paz, 2010. "Tariffs Versus VAT in the Presence of Heterogeneous Firms and an Informal Sector," The Institute for International Integration Studies Discussion Paper Series iiisdp323, IIIS, revised Mar 2010.
  2. Knud Jørgen Munk, 2006. "Tax-tariff reform with costs of tax administration," Economics Working Papers 2006-14, School of Economics and Management, University of Aarhus.

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