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The whys and why nots of export taxation

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Author Info

  • Devarajan, Shantayanan
  • Go, Delfin
  • Schiff, Maurice
  • Suthiwart-Narueput, Sethaput

Abstract

The authors review the arguments for taxing imports, considering two cases: one in which a country has market power in the export commodity, and one in which it does not. They conclude that for countries having market share there are strong analytical and practical arguments for an export tax. While the optimal level of the export tax may depend on the strategic behavior of other exporting and importing countries, on such practical issues as long-run market power, on whether smuggling exists, or on general equilibrium effects, these factors do not reverse the desirability of export taxation for countries with market share. Neither do alternative instruments such as export quotas and cartels, which could potentially yield a better outcome, negate this conclusion. The authors also find that countries without market share are not similarly situated to those with it. To the contrary, for most small, open economies that do not have market power in export markets, taxing imports is harmful not only to imports but also to general economic welfare and growth. Export taxes generate serious economic distortions and disincentives and are a poor instrument for encouraging higher-value-added activities. And in revenue generation, they are likely to be dominated by other tax instruments, and should be viewed as a transitional measure at best, to be replaced as soon as tax administration improves.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1684.

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Date of creation: 30 Nov 1996
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Handle: RePEc:wbk:wbrwps:1684

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Related research

Keywords: Export Competitiveness; Environmental Economics&Policies; Economic Theory&Research; Public Sector Economics&Finance; Tax Law;

References

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  1. Balassa, Bela, 1978. "Exports and economic growth : Further evidence," Journal of Development Economics, Elsevier, vol. 5(2), pages 181-189, June.
  2. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
  3. Panagariya, Arvind & Schiff, Maurice, 1991. "Taxes versus quotas : the case of cocoa exports," Policy Research Working Paper Series 756, The World Bank.
  4. Panagariya, Arvind & Schiff, Maurice, 1994. "Can revenue maximizing export taxes yield higher welfare than welfare maximizing export taxes?," Economics Letters, Elsevier, vol. 45(1), pages 79-84, May.
  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. Dixit, Avinash K, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 205-28, May.
  7. Hoff, Karla, 1991. "Land Taxes, Output Taxes, and Sharecropping: Was Henry George Right?," World Bank Economic Review, World Bank Group, vol. 5(1), pages 93-111, January.
  8. Pack, Howard, 1988. "Industrialization and trade," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 9, pages 333-380 Elsevier.
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Cited by:
  1. Michael Keen & David Wildasin, 2004. "Pareto-Efficient International Taxation," American Economic Review, American Economic Association, vol. 94(1), pages 259-275, March.
  2. Yilmaz, Kamil, 1999. "Optimal export taxes in a multicountry framework," Journal of Development Economics, Elsevier, vol. 60(2), pages 439-465, December.
  3. Michael Keen & David E. Wildasin, 2000. "Pareto Efficiency in International Taxation," CESifo Working Paper Series 371, CESifo Group Munich.

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