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Tax on Traded Goods, and Corrupt Non-traded Goods Sector: Implications for Intermediation Activities

Author

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  • Mandal Biswajit

    (Department of Economics & Politics, Visva-Bharati University, Santiniketan, West Bengal731235, India)

Abstract

This paper uses a Heckscher-Ohlin nugget framework with both traded and non-traded goods. Traded goods are subject to tax whereas non-traded good does not pay tax but is beset with corruption related intermediation. Our motive is to investigate the comparison of the effects of corruption and tax cut. We assume only the non-traded sector to be corruption affected. We argue that a fall in the degree of corruption surprisingly increases the number of intermediators while tax change has no effect on it. But the size of the intermediation activities expands in both the cases. Low corruption diminishes the exportable production and raises importable production while a tax cut does not have any such effect. The welfare implication is ambiguous in case of a decrease in cost of corruption. A tax cut, however, raises welfare unambiguously.

Suggested Citation

  • Mandal Biswajit, 2018. "Tax on Traded Goods, and Corrupt Non-traded Goods Sector: Implications for Intermediation Activities," Review of Economics, De Gruyter, vol. 69(1), pages 1-15, April.
    • Handle: RePEc:lus:reveco:v:69:y:2018:i:1:p:1-15:n:1
    DOI: 10.1515/roe-2017-0015
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    References listed on IDEAS

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    7. Biswajit Mandal & Sugata Marjit, 2012. "Capital inflow, vanishing sector and wage distribution in an economy with corruption related intermediation," Economics Bulletin, AccessEcon, vol. 32(3), pages 2128-2135.
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    10. Sugata Marjit & Biswajit Mandal, 2012. "Domestic trading costs and pure theory of international trade," International Journal of Economic Theory, The International Society for Economic Theory, vol. 8(2), pages 165-178, June.
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    Cited by:

    1. Mandal, Biswajit & Ghosh, Sujata, 2019. "Reformatory Policies and Factor Prices in a Developing Economy with Informal Sector," GLO Discussion Paper Series 367, Global Labor Organization (GLO).

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    More about this item

    Keywords

    international trade; corruption; general equilibrium; welfare;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D6 - Microeconomics - - Welfare Economics

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