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Customs Unions and Domestic Taxes

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  • Martin Richardson

Abstract

It is well known that nondiscriminatory domestic taxes and subsidies are perfect substitutes for nondiscriminatory trade policies and would render useless international agreements restricting trade policy alone. The author shows that these instruments generally are imperfect substitutes for trade policy in a customs union. However, in one popular specification of trading patterns, access to such tax powers nevertheless renders a customs union useless. Furthermore, numerical simulations demonstrate that a union may be ineffective in many other cases, severely curtailing the potential unions that are attractive to both members. The author illustrates the restrictive conditions under which a union will then form.

Suggested Citation

  • Martin Richardson, 1994. "Customs Unions and Domestic Taxes," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 537-550, August.
  • Handle: RePEc:cje:issued:v:27:y:1994:i:3:p:537-50
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    Citations

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    Cited by:

    1. Conconi, P., 2000. "Trade Bloc Formation Under Imperfect Competition," The Warwick Economics Research Paper Series (TWERPS) 571, University of Warwick, Department of Economics.
    2. Subhayu Bandyopadhyay & Sajal Lahiri & Howard J. Wall, 2009. "Cross-border lobbying in preferential trading agreements: implications for external tariffs," Working Papers 2009-041, Federal Reserve Bank of St. Louis.
    3. José Méndez Naya & Luciano Méndez Naya, 2001. "Subsidios a la producción y efectos derivados de la formación de una unión aduanera," Estudios de Economia, University of Chile, Department of Economics, vol. 28(2 Year 20), pages 249-265, December.
    4. Yann Duval, 2002. "Domestic Input Policies in Free Trade Areas with National Asymmetries," Eastern Economic Journal, Eastern Economic Association, vol. 28(2), pages 241-253, Spring.
    5. José Méndez Naya, 2002. "Subsidios a la producción y delegación de la política comercial en una unión aduanera," Estudios de Economia, University of Chile, Department of Economics, vol. 29(2 Year 20), pages 231-246, December.

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