Is there a case for an optimal export tax on perennial crops?
AbstractThe idea of an optimal export tax on a commodity is based on the assumption that by imposing a tax, a country can improve its welfare whenit faces a downward-sloping demand curve for the commodity. The idea is thought to be particularly relevant to producers with large world market shares for primary commodities for which the price elasticity of demand is low. An export tax is considered necessary because the scattered farmers'expected marginal revenue is higher than the marginal revenue of the country as a whole. The author uses a model to calculate the optimal tax and to evaluate the effect of the tax and other factors on welfare. Simulation results show that the optimal level of the export tax depends on how farmers and government form their expectations of future prices. The author found that the tax is indeterminate when the government does not know how farmers form their expectations and when farmers'expectations are independent of recent prices or taxes. The author concludes that in imposing an export tax on perennials, a government should give less consideration to the tax's optimality and more to how the tax affects welfare distribution and long-term production.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 854.
Date of creation: 29 Feb 1992
Date of revision:
Markets and Market Access; Economic Theory&Research; Environmental Economics&Policies; Public Sector Economics&Finance; Access to Markets;
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