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Coordinating Tariff Reduction and Domestic Tax Reform under Imperfect Competition

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  • Keen, M.
  • Ligthart, J.E.

    (Tilburg University, Center for Economic Research)

Abstract

A major constraint on trade liberalization in many countries is the prospective loss of government revenue.Recent results, however, have established a simple and appealing strategy for overcoming this difficulty, whilst still realizing the efficiency gains from liberalization, in small, competitive economies: combining tariff cuts with point-for-point increases in destination-based consumption taxes unambiguously increases both national welfare and total government revenue.This note explores the implications of imperfect competition for this strategy.Examples are easily found in which this strategy unambiguously reduces domestic welfare.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2004-78.

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Date of creation: 2004
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Handle: RePEc:dgr:kubcen:200478

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Keywords: tariffs; tax reform; imperfect competition;

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  1. Havrylyshyn, Oli & Civan, Engin, 1985. "Intra-industry trade among developing countries," Journal of Development Economics, Elsevier, vol. 18(2-3), pages 253-271, August.
  2. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Papers 517, Queen's University, Department of Economics.
  3. Rod Falvey, 1994. "Revenue enhancing tariff reform," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(1), pages 175-190, March.
  4. Tharakan, P. K. M., 1984. "Intra-industry trade between the industrial countries and the developing world," European Economic Review, Elsevier, vol. 26(1-2), pages 213-227.
  5. Michael Keen & Johanna Elisabeth Ligthart, 1999. "Coordinating Tariff Reduction and Domestic Tax Reform," IMF Working Papers 99/93, International Monetary Fund.
  6. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
  7. Michael, Michael S. & Hatzipanayotou, Panos & Miller, Stephen M., 1993. "Integrated reforms of tariffs and consumption taxes," Journal of Public Economics, Elsevier, vol. 52(3), pages 417-428, October.
  8. 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.
  9. Vito Tanzi, 1989. "The Impact of Macroeconomic Policies on the Level of Taxation and the Fiscal Balance in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 633-656, September.
  10. Keen, Michael & Lahiri, Sajal, 1993. "Domestic tax reform and international oligopoly," Journal of Public Economics, Elsevier, vol. 51(1), pages 55-74, May.
  11. Reint Gropp & Liam P. Ebrill & Janet Gale Stotsky, 1999. "Revenue Implications of Trade Liberalization," IMF Occasional Papers 180, International Monetary Fund.
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Citations

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Cited by:
  1. Tehmina S. Khan & John Norregaard, 2007. "Tax Policy," IMF Working Papers 07/274, International Monetary Fund.
  2. Michael Keen & Thomas Baunsgaard, 2005. "Tax Revenue and (or?) Trade Liberalization," IMF Working Papers 05/112, International Monetary Fund.
  3. 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.
  4. Fujiwara, Kenji, 2014. "Pareto-improving tariff-tax reforms under imperfect competition," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 12-20.
  5. Lagadec, Gael & Descombels, Alain, 2009. "L'ombre de la crise
    [The shadow of the global crisis]
    ," MPRA Paper 17871, University Library of Munich, Germany.
  6. Sokolovska, Olena & Sokolovskyi, Dmytro, 2011. "The effect of tax-tariff reform: evidence from Ukraine," MPRA Paper 42643, University Library of Munich, Germany.
  7. Richard M. Bird, 2005. "Value-Added Taxes in Developing and Transitional Countries: Lessons and Questions," International Tax Program Papers 0505, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
  8. Panos Hatzipanayotou & Sajal Lahiri & Michael Michael, 2011. "Trade and domestic tax reforms in the presence of a public good and different neutrality conditions," International Tax and Public Finance, Springer, vol. 18(3), pages 273-290, June.
  9. Michael S. Michael & Sajal Lahiri & Panos Hatzipanayotou, 2013. "Piecemeal Reform of Domestic Indirect Taxes toward Uniformity in the Presence of Pollution: with and without a Revenue Constraint," University of Cyprus Working Papers in Economics 03-2013, University of Cyprus Department of Economics.
  10. Kenji Fujiwara, 2014. "Tax Principles and Tariff-Tax Reforms under International Oligopoly," Discussion Paper Series 116, School of Economics, Kwansei Gakuin University, revised Mar 2014.

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