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Coordinating tariff reduction and domestic tax reform

  • Keen, Michael
  • Ligthart, Jenny E.

A key obstacle to fundamental tariff reform in many developing countries is the revenue loss that it ultimately implies. This paper establishes a simple and practicable strategy for realizing the efficiency gains from tariff reform without reducing public revenues, showing that for a small open economy, a cut in tariffs combined with a point-for-point increase in domestic consumption taxes increases both welfare and public revenues. Increasingly stringent conditions are required, however, to ensure unambiguously beneficial outcomes from this reform strategy when allowance is made for such important features as nontradeable goods, intermediate inputs, and imperfect competition.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 56 (2002)
Issue (Month): 2 (March)
Pages: 489-507

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Handle: RePEc:eee:inecon:v:56:y:2002:i:2:p:489-507
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  1. Tsuneki, A., 1992. "Pareto-Improving Changes of Tariffs and Taxes," ISER Discussion Paper 0284, Institute of Social and Economic Research, Osaka University.
  2. Panagariya, Arvind, 1992. "Input tariffs, duty drawbacks, and tariff reforms," Journal of International Economics, Elsevier, vol. 32(1-2), pages 131-147, February.
  3. Neary, J. Peter, 1994. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Journal of International Economics, Elsevier, vol. 37(3-4), pages 197-218, November.
  4. Reint Gropp & Liam P. Ebrill & Janet Gale Stotsky, 1999. "Revenue Implications of Trade Liberalization," IMF Occasional Papers 180, International Monetary Fund.
  5. Rod Falvey, 1994. "Revenue enhancing tariff reform," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(1), pages 175-190, March.
  6. Michael, Michael S. & Hatzipanayotou, Panos & Miller, Stephen M., 1993. "Integrated reforms of tariffs and consumption taxes," Journal of Public Economics, Elsevier, vol. 52(3), pages 417-428, October.
  7. Burgess, Robin & Stern, Nicholas, 1993. "Taxation and Development," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 762-830, June.
  8. Beghin, John C. & Karp, Larry S., 2001. "Piecemeal Trade Reform in Presence of Producer-Specific Domestic Subsidies," Staff General Research Papers 5381, Iowa State University, Department of Economics.
  9. Fukushima, Takashi, 1979. "Tariff Structure, Nontraded Goods and Theory of Piecemeal Policy Recommendations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 427-35, June.
  10. Anderson, James E., 1997. "Revenue Neutral Trade Reform with Many Households, Quotas and Tariffs," Seminar Papers 626, Stockholm University, Institute for International Economic Studies.
  11. Hatzipanayotou, Panos & Michael, Michael S. & Miller, Stephen M., 1994. "Win-win indirect tax reform : A modest proposal," Economics Letters, Elsevier, vol. 44(1-2), pages 147-151.
  12. Hatta, Tatsuo, 1977. "A Recommendation for a Better Tariff Structure," Econometrica, Econometric Society, vol. 45(8), pages 1859-69, November.
  13. Lopez, Ramon & Panagariya, Arvind, 1992. "On the Theory of Piecemeal Tariff Reform: The Case of Pure Imported Intermediate Inputs," American Economic Review, American Economic Association, vol. 82(3), pages 615-25, June.
  14. Diewert, W E & Turunen-Red, A H & Woodland, A D, 1989. "Productivity- and Pareto-Improving Changes in Taxes and Tariffs," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 199-215, April.
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