Tariffs and Production Subsidies as Devices to Relax the Incentive Problem of a Progressive Income Tax System
AbstractThis paper shows that tariffs and production subsidies can Pareto-improve welfare in a small open economy when a government is concerned with income redistribution under asymmetric information. In international trade theory, free trade is optimal if the government can use lump-sum taxes and transfers. However, in reality the government cannot use the lump-sum taxes and trabsfers due to asymmetric information between the government and individuals. In this case the government needs to use a progressive incomem tax system for income redistribution. This paper shows that in such a situation even if the goverment use Pareto-optimal progressive income tax system used free trade, tariffs can Pareto-improve welfare.
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Bibliographic InfoPaper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 391.
Length: 36 pages
Date of creation: 1996
Date of revision:
TARIFFS ; PRODUCTION ; INFORMATION;
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
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- Saez, Emmanuel, 2004.
"Direct or indirect tax instruments for redistribution: short-run versus long-run,"
Journal of Public Economics,
Elsevier, vol. 88(3-4), pages 503-518, March.
- Emmanuel Saez, 2002. "Direct or Indirect Tax Instruments for Redistribution: Short-run versus Long-run," NBER Working Papers 8833, National Bureau of Economic Research, Inc.
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