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The Trade and Welfare Consequences of U.S. Export-Enhancing Tax Provisions

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  • Stephen Tokarick
  • Don Rousslang

Abstract

The U.S. tax code contains two provisions that encourage exports by reducing the U.S. corporate income tax on export profits. An applied general equilibrium model of the U.S. economy is used to estimate the trade and welfare consequences of eliminating both tax provisions. We find that the provisions ameliorate the trade-discouraging effects of U.S. tariffs, but they also adversely affect the U.S. terms of trade to such an extent that eliminating them is likely to improve U.S. domestic welfare. While it is possible to find a “equivalent” tariff rate that replicates the effects on trade flows of removing the tax provisions, the welfare effects of a tariff differ importantly because a tariff interacts differently than the tax provisions with other distortions in the model.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 94/50.

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Length: 28
Date of creation: 01 May 1994
Date of revision:
Handle: RePEc:imf:imfwpa:94/50

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Cited by:
  1. Mihir A. Desai & James R. Hines Jr., 2000. "The Uneasy Marriage of Export Incentives and the Income Tax," NBER Working Papers 8009, National Bureau of Economic Research, Inc.
  2. Mihir A. Desai & James R. Hines Jr., 2001. "Exchange Rates and Tax-Based Export Promotion," NBER Working Papers 8121, National Bureau of Economic Research, Inc.

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