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On the Rationale for the Use of Border Taxes in Developing Countries

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  • Knud Jørgen Munk

    (School of Economics and Management, University of Aarhus, Denmark)

Abstract

With reference to the size of the informal sector, Stiglitz (2003) argues that border taxes are superior to VAT in certain developing countries. By way of a quantitative example this paper shows that, while Stiglitz’ claim is probably will turn out to be correct, a large informal sector is not a sufficient condition for border taxes to be preferable to a VAT regime as shown by Keen (2006). Making the case for using border taxes also requires the plausible supplementary assumptions that (i) border taxes are associated with lower administrative costs, and (ii) that this difference is sufficiently large to justify the larger distortionary costs associated with border taxes compared to domestic taxes.

Suggested Citation

  • Knud Jørgen Munk, 2006. "On the Rationale for the Use of Border Taxes in Developing Countries," Economics Working Papers 2006-12, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:aarhec:2006-12
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    File URL: ftp://ftp.econ.au.dk/afn/wp/06/wp06_12.pdf
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    References listed on IDEAS

    as
    1. Munch, Jakob Roland & Rosholm, Michael & Svarer, Michael, 2008. "Home ownership, job duration, and wages," Journal of Urban Economics, Elsevier, vol. 63(1), pages 130-145, January.
    2. Francesco Busato & Enrico Marchetti, 2009. "Skills, sunspots and cycles," Journal of Economics, Springer, vol. 97(3), pages 189-215, July.
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    Cited by:

    1. Ronald Davies & Lourenço Paz, 2011. "Tariffs versus VAT in the presence of heterogeneous firms and an informal sector," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(5), pages 533-554, October.
    2. 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.

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    More about this item

    Keywords

    Optimal trade policy; VAT; tax-tariff reform; costs of tax administration; informal sector; developing countries;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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