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On the Determinants of Optimal Border Taxes for a Small Open Economy

  • Knud Jørgen Munk
  • Bo Sandemann Rasmussen

    ()

    (Department of Economics, University of Aarhus, Denmark)

For a small open economy where the government is restricted to raise revenue using border taxes only, the optimal structure of border taxes is considered. As a matter of normalization exports and the supply to the market of the primary factor may be assumed to be untaxed, but that the household use of the primary factor and domestic consumption of the export good cannot be taxed is nevertheless a constraint; this insight provides the key to understanding what determines the optimal tariff structure. The optimal border tax structure is derived for both exogenous and endogenous labour supply, and the results are interpreted in the spirit of the Corlett-Hague results for the optimal tax structure in a closed economy and compared with results from CGE models.

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File URL: ftp://ftp.econ.au.dk/afn/wp/05/wp05_22.pdf
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Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2005-22.

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Length: 11
Date of creation: 15 Dec 2005
Date of revision:
Handle: RePEc:aah:aarhec:2005-22
Contact details of provider: Web page: http://www.econ.au.dk/afn/

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  1. Partha Dasgupta & Joseph E. Stiglitz, 1972. "Benefit-Cost Analysis and Trade Policies," Cowles Foundation Discussion Papers 340, Cowles Foundation for Research in Economics, Yale University.
  2. Diamond, P. A. & McFadden, D. L., 1974. "Some uses of the expenditure function in public finance," Journal of Public Economics, Elsevier, vol. 3(1), pages 3-21, February.
  3. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
  4. Dixit, A. K. & Munk, K. J., 1977. "Welfare effects of tax and price changes : A correction," Journal of Public Economics, Elsevier, vol. 8(1), pages 103-107, August.
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