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Pareto-improving tariff-tax reforms under imperfect competition

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  • Kenji Fujiwara

    ()
    (School of Economics, Kwansei Gakuin University)

Abstract

Constructing a duopoly model with non-constant marginal costs and a strict Pareto criterion, this paper examines welfare effects of world-price-fixing tariff reductions accompanied by adjustments of a domestic tax. If a destination-based consumption tax is used, this reform achieves a strict Pareto improvement under sufficiently decreasing marginal costs. If, in contrast, an origin-based production tax is employed, a strict Pareto improvement holds whether marginal cost is decreasing or not. Thus, we can conclude that tariff-tax reforms that improve the world welfare and are irrelevant of tax bases are possible if the targeted industry exhibits sufficiently decreasing marginal costs.

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File URL: http://192.218.163.163/RePEc/pdf/kgdp110.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 110.

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Length: 20 pages
Date of creation: Oct 2013
Date of revision: Oct 2013
Handle: RePEc:kgu:wpaper:110

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Keywords: tariff-tax reform; destination principle; origin principle; strict Pareto improvement/deterioration; duopoly;

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  1. Kyle Bagwell & Robert W. Staiger, 2009. "Profit Shifting and Trade Agreements in Imperfectly Competitive Markets," NBER Working Papers 14803, National Bureau of Economic Research, Inc.
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