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How much should primary commodity exports be taxed? Nash and Stackelberg equilibria in the Global Cocoa Market

  • Kamil Yilmaz

This paper extends the partial (PE) and general equilibrium (GE) analyses of Nash and Stackelberg optimum export taxes to a multicountry framework, using a computable general equilibrium (CGE) model of the global cocoa market. There are several results to report. First, depending on the leader's market share and cocoa supply elasticity, a Stackelberg optimum tax rate is either higher than or equal to the Nash optimum tax rate. Second, undertaking a PE analysis of those countries with characteristics that require a GE approach leads to the overestimation of the followers' optimum export taxes. However, the consequences for the leaders' optimum tax rates are not certain. For countries with elastic supply Stackelberg leader optimum tax rates are higher in the PE than in the GE framework. The reverse is true for countries with inelastic supply. Finally, we show that the symmetric equilibrium result, that a country is better off under another country's leadership than its own, is not necessarily carried over to an asymmetric setting.

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Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 15 (2006)
Issue (Month): 1 ()
Pages: 1-26

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Handle: RePEc:taf:jitecd:v:15:y:2006:i:1:p:1-26
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  1. Markusen, James R & Wigle, Randall M, 1989. "Nash Equilibrium Tariffs for the United States and Canada: The Roles of Country Size, Scale Economies, and Capital Mobility," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 368-86, April.
  2. Akiyama, Takamasa & Larson, Donald F. & DEC, 1994. "The adding-up problem : strategies for primary commodity exports in sub-Saharan Africa," Policy Research Working Paper Series 1245, The World Bank.
  3. Ngee-Choon Chia & Wahba, Sadek & Whalley, John, 1992. "A general equilibrium based social policy model for Cote d'Ivoire," Policy Research Working Paper Series 925, The World Bank.
  4. Yilmaz, Kamil, 1999. "Optimal export taxes in a multicountry framework," Journal of Development Economics, Elsevier, vol. 60(2), pages 439-465, December.
  5. 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.
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