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Revenue Neutral Trade Reform with Many Households, Quotas and Tariffs

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Author Info

  • Anderson, James E.

    ()
    (Department of Economics, Boston College)

Abstract

Government budget balance forces the endogenous use of distortionary tax instruments when an exogenous reform is implemented. The aggregate efficiency of such reforms is based on comparisons of simple summary measures of the Marginal Cost of Funds of the various tariff or quota changes with the Marginal Cost of Funds of the alternative taxes, or of the Marginal Benefit of Government supplied goods. The aggregate efficiency of tariff liberalization is dubious, while quota liberalization is more likely to be efficient. Social welfare rises with aggregate efficiency unless distribution effects are perverse. Plausible sufficient conditions for non-perverse distributional effects are provided. The results frame a diagnostic method for sensitivity analysis in evaluations of trade and tax policies.

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Bibliographic Info

Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 626.

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Length: 35 pages
Date of creation: 31 Oct 1997
Date of revision:
Publication status: Forthcoming in Review of International Economics, 2002.
Handle: RePEc:hhs:iiessp:0626

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Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
Phone: +46-8-162000
Fax: +46-8-161443
Web page: http://www.iies.su.se/
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Keywords: aggregate efficiency; tariff liberalization; quota liberalization; Social welfare; non-perverse distributional effects;

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References

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  1. Lopez, Ramon & Panagariya, Arvind, 1992. "On the Theory of Piecemeal Tariff Reform: The Case of Pure Imported Intermediate Inputs," American Economic Review, American Economic Association, vol. 82(3), pages 615-25, June.
  2. James E. Anderson, 1996. "Trade Reform with a Government Budget Constraint," NBER Working Papers 5827, National Bureau of Economic Research, Inc.
  3. Krishna, K. & Erzan, R. & Tan, L.H., 1991. "Rent Sharing In The Multi-Fibre Arrangement: Theory And Evidence From Us Apparel Imports From Hong Kong," Harvard Institute of Economic Research Working Papers 1549, Harvard - Institute of Economic Research.
  4. Levy, Santiago & van Wijnbergen, Sweder, 1995. "Transition Problems in Economic Reform: Agriculture in the North American Free Trade Agreement," American Economic Review, American Economic Association, vol. 85(4), pages 738-54, September.
  5. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Fukushima, Takashi, 1981. "A dynamic quantity adjustment process in a small open economy, and welfare effects of tariff changes," Journal of International Economics, Elsevier, vol. 11(4), pages 513-529, November.
  7. Hatta, Tatsuo, 1977. "A Theory of Piecemeal Policy Recommendations," Review of Economic Studies, Wiley Blackwell, vol. 44(1), pages 1-21, February.
  8. Anderson, James E & Neary, J Peter, 1994. "The Trade Restrictiveness of the Multi-fibre Arrangement," World Bank Economic Review, World Bank Group, vol. 8(2), pages 171-89, May.
  9. Ahmad, Ehtisham & Stern, Nicholas, 1990. "Tax Reform and Shadow Prices for Pakistan," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 135-59, January.
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