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

Author

Listed:
  • Knud Jørgen Munk
  • Bo Sandemann Rasmussen

    () (Department of Economics, University of Aarhus, Denmark)

Abstract

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.

Suggested Citation

  • Knud Jørgen Munk & Bo Sandemann Rasmussen, 2005. "On the Determinants of Optimal Border Taxes for a Small Open Economy," Economics Working Papers 2005-22, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:aarhec:2005-22
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    File URL: ftp://ftp.econ.au.dk/afn/wp/05/wp05_22.pdf
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    References listed on IDEAS

    as
    1. W. J. Corlett & D. C. Hague, 1953. "Complementarity and the Excess Burden of Taxation," Review of Economic Studies, Oxford University Press, vol. 21(1), pages 21-30.
    2. 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.
    3. Dasgupta, Partha S & Stiglitz, Joseph E, 1974. "Benefit-Cost Analysis and Trade Policies," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 1-33, Jan.-Feb..
    4. 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.
    5. 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.
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    Citations

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    Cited by:

    1. Knud Munk, 2008. "Tax-tariff reform with costs of tax administration," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(6), pages 647-667, December.
    2. Knud MUNK, "undated". "On the Use of Border Taxes in Developing Countries," EcoMod2008 23800093, EcoMod.

    More about this item

    Keywords

    Border taxes; small open economy; labour supply; Corlett-Hague.;

    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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