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Trade Reform with a Government Budget Constraint

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  • James E. Anderson

    (Boston College)

Abstract

The theory of trade reform typically is based on a passive government budget constraint, in which changes in tariff revenue are costlessly offset by lump sum transfers. This paper offers a general framework for trade reform when the government budget constraint is active, such that tariff revenue cuts must be offset by public good decreases or other tax increases. The trade reform and public finance literatures are integrated to develop some useful and simple new expressions characterizing welfare improving trade reform. The expressions are operational with Computable General Equilibrium models. The theoretical analysis and an application to Korean data in 1963 cast doubt of the desirability of tariff cuts in convex competitive economies with active government budget constraints.

Suggested Citation

  • James E. Anderson, 1997. "Trade Reform with a Government Budget Constraint," Boston College Working Papers in Economics 348., Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:348
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    Cited by:

    1. Anderson, James E., 1997. "Revenue Neutral Trade Reform with Many Households, Quotas and Tariffs," Seminar Papers 626, Stockholm University, Institute for International Economic Studies.
    2. Anderson, James E. & Martin, Will, 1998. "Evaluating public expenditures when governments must rely on distortionary taxation," Policy Research Working Paper Series 1981, The World Bank.
    3. 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.
    4. Rajaraman, Indira, 2004. "Fiscal developments and outlook in India," Working Papers 04/15, National Institute of Public Finance and Policy.
    5. Keen, Michael, 2008. "VAT, tariffs, and withholding: Border taxes and informality in developing countries," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 1892-1906, October.
    6. J. Peter Neary, 1998. "Pitfalls in the Theory of International Trade Policy: Concertina Reforms of Tariffs, and Subsidies to High‐Technology Industries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 187-206, March.
    7. Buettner, Thiess & Madzharova, Boryana, 2018. "WTO membership and the shift to consumption taxes," World Development, Elsevier, vol. 108(C), pages 197-218.
    8. Joseph E. Stiglitz & M. Shahe Emran, 2004. "Price Neutral Tax reform With an Informal Economy," Econometric Society 2004 North American Summer Meetings 493, Econometric Society.
    9. Michael Keen, 2007. "VAT attacks!," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(4), pages 365-381, August.
    10. Chang, Yang-Ming & Sargsyan, Ruben, 2022. "Revenue-neutral or profit-neutral tariff and tax reforms under imperfect competition: Welfare implications," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 1-11.
    11. San Vicente Portes, Luis, 2009. "On the distributional effects of trade policy: Dynamics of household saving and asset prices," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 944-970, August.
    12. 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.
    13. James E. Anderson, 2002. "Trade Reform Diagnostics with Many Households, Quotas, and Tariffs," Review of International Economics, Wiley Blackwell, vol. 10(2), pages 215-236, May.
    14. repec:npf:wpaper:15 is not listed on IDEAS
    15. repec:ind:nipfwp:15 is not listed on IDEAS
    16. Can Erbil, 2004. "Trade Taxes Are Expensive," International Trade 0409002, University Library of Munich, Germany.
    17. Kubota, Keiko, 2000. "Fiscal constraints, collection costs, and trade policies," Policy Research Working Paper Series 2366, The World Bank.

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    More about this item

    Keywords

    Marginal cost of funds; trade reform;

    JEL classification:

    • F1 - International Economics - - Trade
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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