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Trade Reform with a Government Budget Constraint

In: International Trade Policy and the Pacific Rim

Author

Listed:
  • James E. Anderson

    (Boston College
    National Bureau of Economic Research)

  • Arja Turunen-Red

    (University of New Orleans)

Abstract

Practical trade policy advice must usually recognize that trade taxes help to raise government revenue required for other fiscal purposes. In contrast, the theory of trade policy analysis typically uses the simplifying assumption that tariff revenue is ‘passively’ redistributed, so that a fall in revenue is offset by a fall in the lump sum transfer from the government to the private sector. The passive transfer assumption was perhaps an appropriate simplification in the economies of the Organisation for Economic Cooperation and Development (OECD) in the era of rapid growth, but it is clearly inappropriate to the present concern over public debt along with resistance to tax increases or cuts in the provision of public-sector goods.1 The passive transfer assumption was never appropriate for the governments of developing nations, which are typically dependent on tariff revenue.

Suggested Citation

  • James E. Anderson & Arja Turunen-Red, 1999. "Trade Reform with a Government Budget Constraint," International Economic Association Series, in: John Piggott & Alan Woodland (ed.), International Trade Policy and the Pacific Rim, chapter 9, pages 217-244, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-349-14543-0_9
    DOI: 10.1007/978-1-349-14543-0_9
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    Cited by:

    1. Anderson, James E., 1997. "Revenue Neutral Trade Reform with Many Households, Quotas and Tariffs," Seminar Papers 626, Stockholm University, Institute for International Economic Studies.
    2. San Vicente Portes, Luis, 2009. "On the distributional effects of trade policy: Dynamics of household saving and asset prices," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 944-970, August.
    3. James E. Anderson, 2002. "Trade Reform Diagnostics with Many Households, Quotas, and Tariffs," Review of International Economics, Wiley Blackwell, vol. 10(2), pages 215-236, May.
    4. J. Peter Neary, 1998. "Pitfalls in the Theory of International Trade Policy: Concertina Reforms of Tariffs, and Subsidies to High‐Technology Industries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 187-206, March.
    5. Michael Keen, 2007. "VAT attacks!," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(4), pages 365-381, August.
    6. M. Shahe Emran & Joseph E. Stiglitz, 2004. "Price-neutral Tax Reform With an Informal Economy," Public Economics 0407010, University Library of Munich, Germany.
    7. Emran, M. Shahe & Stiglitz, Joseph E., 2005. "On selective indirect tax reform in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 599-623, April.
    8. Anderson, James E. & Martin, Will, 1998. "Evaluating public expenditures when governments must rely on distortionary taxation," Policy Research Working Paper Series 1981, The World Bank.
    9. Rajaraman, Indira, 2004. "Fiscal developments and outlook in India," Working Papers 04/15, National Institute of Public Finance and Policy.
    10. Keen, Michael, 2008. "VAT, tariffs, and withholding: Border taxes and informality in developing countries," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 1892-1906, October.
    11. Buettner, Thiess & Madzharova, Boryana, 2018. "WTO membership and the shift to consumption taxes," World Development, Elsevier, vol. 108(C), pages 197-218.
    12. Emran, M. Shahe, 2005. "Revenue-increasing and welfare-enhancing reform of taxes on exports," Journal of Development Economics, Elsevier, vol. 77(1), pages 277-292, June.
    13. Chang, Yang-Ming & Sargsyan, Ruben, 2022. "Revenue-neutral or profit-neutral tariff and tax reforms under imperfect competition: Welfare implications," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 1-11.
    14. repec:ind:nipfwp:15 is not listed on IDEAS
    15. Can Erbil, 2004. "Trade Taxes Are Expensive," International Trade 0409002, University Library of Munich, Germany.
    16. Kubota, Keiko, 2000. "Fiscal constraints, collection costs, and trade policies," Policy Research Working Paper Series 2366, The World Bank.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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