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Customs Unions and Domestic Taxes

In: Dimensions of Trade Policy

Author

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  • Martin Richardson

Abstract

It is well known that non-discriminatory domestic taxes and subsidies are perfect substitutes for non-discriminatory trade policies and would render useless international agreements restricting trade policy alone. We show 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. We illustrate the restrictive conditions under which a union will then form.

Suggested Citation

  • Martin Richardson, 2017. "Customs Unions and Domestic Taxes," World Scientific Book Chapters, in: Dimensions of Trade Policy, chapter 7, pages 153-169, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813207615_0007
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    Cited by:

    1. Conconi, Paola, 2000. "Trade Bloc Formation Under Imperfect Competition," Economic Research Papers 269342, 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.

    More about this item

    Keywords

    Trade Policy; Preferential Trading Agreements; Content Protection; Parallel Imports;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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