The Dynamics of Revenue-Neutral Trade Liberalization
AbstractAbstract: The paper studies the dynamic welfare and macroeconomic effects of a revenue-neutral strategy of offsetting tariff reductions with increases in destination-based consumption taxes. To this end, we employ a dynamic general equilibrium model of a small open developing economy, featuring endogenous labor supply and sector-specific capital and land. In contrast to conventional results from tax-tariff reform studies based on fixed factor endowments, we find that instantaneous utility and the volume of trade fall on impact. Aggregate output rises in the short run, re ecting increased labor supply and a more efficient allocation of resources across sectors. In the long run, however, aggregate output declines, whereas instantaneous utility and the volume of trade increase compared to the pre-reform equilibrium. For a plausible calibration of the model, lifetime welfare is shown to increase.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2011-142.
Date of creation: 2011
Date of revision:
Contact details of provider:
Web page: http://center.uvt.nl
Tariff reform; coordinated tax-tariff reform; consumption tax reform; trade liberalization;
Other versions of this item:
- Jenny Ligthart & Gerard C. van der Meijdenz, 2011. "The Dynamics of Revenue-Neutral Trade Liberalization," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1124, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- M. Shahe Emran & Joseph E. Stiglitz, 2002. "On Selective Indirect Tax Reform in Developing Countries," International Trade 0210003, EconWPA.
- Judd, Kenneth L., 1982. "An alternative to steady-state comparisons in perfect foresight models," Economics Letters, Elsevier, vol. 10(1-2), pages 55-59.
- Turnovsky, Stephen J., 2011. "On the role of small models in macrodynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1605-1613, September.
- Douglas Gollin, 2001.
"Getting Income Shares Right,"
Department of Economics Working Papers
2001-11, Department of Economics, Williams College.
- Turnovsky, Stephen J. & Basher, Md.A., 2009. "Fiscal policy and the structure of production in a two-sector developing economy," Journal of Development Economics, Elsevier, vol. 88(2), pages 205-216, March.
- Edward C. Prescott, 2006. "Nobel Lecture: The Transformation of Macroeconomic Policy and Research," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 203-235, April.
- King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
- Akos Valentinyi & Berthold Herrendorf, 2008.
"Measuring Factor Income Shares at the Sectoral Level,"
IEHAS Discussion Papers
0803, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
- Akos Valentinyi & Berthold Herrendorf, 2008. "Measuring Factor Income Shares at the Sector Level," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 820-835, October.
- 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.
- Chirinko, Robert S., 2008. "[sigma]: The long and short of it," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 671-686, June.
- Michael Keen & Thomas Baunsgaard, 2005.
"Tax Revenue and (or?) Trade Liberalization,"
IMF Working Papers
05/112, International Monetary Fund.
- Heijdra, Ben J, 1998. "Fiscal Policy Multipliers: The Role of Monopolistic Competition, Scale Economies, and Intertemporal Substitution in Labour Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 659-96, August.
- Fukushima, Takashi, 1979. "Tariff Structure, Nontraded Goods and Theory of Piecemeal Policy Recommendations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 427-35, June.
- Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
- Robert S. Chirinko, 2008. "ó: The Long And Short Of It," CESifo Working Paper Series 2234, CESifo Group Munich.
- Kreickemeier, Udo & Raimondos-Møller, Pascalis, 2006.
"Tariff-Tax Reforms and Market Access,"
CEPR Discussion Papers
5889, C.E.P.R. Discussion Papers.
- Michael Keen & Johanna Elisabeth Ligthart, 1999.
"Coordinating Tariff Reduction and Domestic Tax Reform,"
IMF Working Papers
99/93, International Monetary Fund.
- Keen, Michael & Ligthart, Jenny E., 2002. "Coordinating tariff reduction and domestic tax reform," Journal of International Economics, Elsevier, vol. 56(2), pages 489-507, March.
- L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
- Roger Gordon & Wei Li, 2005.
"Tax Structure in Developing Countries: Many Puzzles and a Possible Explanation,"
NBER Working Papers
11267, National Bureau of Economic Research, Inc.
- Gordon, Roger & Li, Wei, 2009. "Tax structures in developing countries: Many puzzles and a possible explanation," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 855-866, August.
- 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.
- Dennis, Benjamin N. & Iscan, Talan B., 2007. "Productivity growth and agricultural out-migration in the United States," Structural Change and Economic Dynamics, Elsevier, vol. 18(1), pages 52-74, March.
- Jenny Ligthart & Gerard C. van der Meijden, 2010.
"Coordinated Tax-Tari Reforms, Informality, and Welfare Distribution,"
International Center for Public Policy Working Paper Series, at AYSPS, GSU
paper1029, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
- Ligthart, J.E. & Meijden, G.C. van der, 2010. "Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution," Discussion Paper 2010-61, Tilburg University, Center for Economic Research.
- Jenny Ligthart & Gerard C. van der Meijden, 2010. "Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution," CESifo Working Paper Series 3107, CESifo Group Munich.
- Giavazzi, Francesco & Wyplosz, Charles, 1985. "The Zero Root Problem: A Note on the Dynamic Determination of the Stationary Equilibrium in Linear Models," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 353-57, April.
- Hatta, Tatsuo, 1977. "A Recommendation for a Better Tariff Structure," Econometrica, Econometric Society, vol. 45(8), pages 1859-69, November.
- Haque, M. Emranul & Mukherjee, Arijit, 2005. "On the revenue implications of trade liberalization under imperfect competition," Economics Letters, Elsevier, vol. 88(1), pages 27-31, July.
- Juha Tervala & Giovanni Ganelli, 2012. "Tariff-Tax Reforms in Large Economies," IMF Working Papers 12/139, International Monetary Fund.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard Broekman).
If references are entirely missing, you can add them using this form.