IDEAS home Printed from https://ideas.repec.org/p/boc/bocoec/348.html
   My bibliography  Save this paper

Trade Reform with a Government Budget Constraint

Author

Listed:
  • James E. Anderson

    (Boston College)

Abstract

The theory of trade reform typically is based on a passive government budget constraint, in which changes in tariff revenue are costlessly offset by lump sum transfers. This paper offers a general framework for trade reform when the government budget constraint is active, such that tariff revenue cuts must be offset by public good decreases or other tax increases. The trade reform and public finance literatures are integrated to develop some useful and simple new expressions characterizing welfare improving trade reform. The expressions are operational with Computable General Equilibrium models. The theoretical analysis and an application to Korean data in 1963 cast doubt of the desirability of tariff cuts in convex competitive economies with active government budget constraints.

Suggested Citation

  • James E. Anderson, 1997. "Trade Reform with a Government Budget Constraint," Boston College Working Papers in Economics 348., Boston College Department of Economics.
  • Handle: RePEc:boc:bocoec:348
    as

    Download full text from publisher

    File URL: http://fmwww.bc.edu/EC-P/wp348.pdf
    File Function: main text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Anderson, James E. & Young, Leslie, 1992. "Optimal taxation and debt in an open economy," Journal of Public Economics, Elsevier, vol. 47(1), pages 27-57, February.
    2. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    3. Rod Falvey, 1994. "Revenue enhancing tariff reform," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(1), pages 175-190, March.
    4. Tatsuo Hatta, 1977. "A Theory of Piecemeal Policy Recommendations," Review of Economic Studies, Oxford University Press, vol. 44(1), pages 1-21.
    5. W. E. Diewert & A. H. Turunen-Red & A. D. Woodland, 1989. "Productivity- and Pareto-Improving Changes in Taxes and Tariffs," Review of Economic Studies, Oxford University Press, vol. 56(2), pages 199-215.
    6. Squire, Lyn, 1989. "Project evaluation in theory and practice," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 21, pages 1093-1137, Elsevier.
    7. James E. Anderson & Will Martin, 1996. "The Welfare Analysis of Fiscal Policy: A Simple Unified Account," Boston College Working Papers in Economics 316., Boston College Department of Economics.
    8. Abe, Kenzo, 1992. "Tariff Reform in a Small Open Economy with Public Production," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(1), pages 209-222, February.
    9. Michael Bruno, 1972. "Market Distortions and Gradual Reform," Review of Economic Studies, Oxford University Press, vol. 39(3), pages 373-383.
    10. Lopez, Ramon & Panagariya, Arvind, 1992. "On the Theory of Piecemeal Tariff Reform: The Case of Pure Imported Intermediate Inputs," American Economic Review, American Economic Association, vol. 82(3), pages 615-625, June.
    11. Foster, Edward & Sonnenschein, Hugo, 1970. "Price Distortion and Economic Welfare," Econometrica, Econometric Society, vol. 38(2), pages 281-297, March.
    12. Lloyd, P. J., 1974. "A more general theory of price distortions in open economies," Journal of International Economics, Elsevier, vol. 4(4), pages 365-386, November.
    13. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-138, March.
    14. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
    15. Bertrand, Trent J & Vanek, Jaroslav, 1971. "The Theory of Tariffs, Taxes, and Subsidies: Some Aspects of the Second Best," American Economic Review, American Economic Association, vol. 61(5), pages 925-931, December.
    16. Devarajan, Shantayanan & Squire, Lyn & Suthiwart-Narueput, Sethaput, 1995. "Reviving project appraisal at the World Bank," Policy Research Working Paper Series 1496, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. 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.
    3. Buettner, Thiess & Madzharova, Boryana, 2018. "WTO membership and the shift to consumption taxes," World Development, Elsevier, vol. 108(C), pages 197-218.
    4. Joseph E. Stiglitz & M. Shahe Emran, 2004. "Price Neutral Tax reform With an Informal Economy," Econometric Society 2004 North American Summer Meetings 493, Econometric Society.
    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. Anderson, James E., 1997. "Revenue Neutral Trade Reform with Many Households, Quotas and Tariffs," Seminar Papers 626, Stockholm University, Institute for International Economic Studies.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. Can Erbil, 2004. "Trade Taxes Are Expensive," International Trade 0409002, University Library of Munich, Germany.
    13. Kubota, Keiko, 2000. "Fiscal constraints, collection costs, and trade policies," Policy Research Working Paper Series 2366, The World Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Can Erbil, 2004. "Trade Taxes Are Expensive," International Trade 0409002, University Library of Munich, Germany.
    2. Pascalis Raimondos-Møller & Alan Woodland, 2014. "Steepest ascent tariff reform," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(1), pages 69-99, January.
    3. Anderson, James E & Bannister, Geoffrey J & Neary, J Peter, 1995. "Domestic Distortions and International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 139-157, February.
    4. Anderson, James E. & Neary, J. Peter, 2016. "Sufficient statistics for tariff reform when revenue matters," Journal of International Economics, Elsevier, vol. 98(C), pages 150-159.
    5. Anderson, James E. & Neary, J. Peter, 2007. "Welfare versus market access: The implications of tariff structure for tariff reform," Journal of International Economics, Elsevier, vol. 71(1), pages 187-205, March.
    6. Jean‐Paul Chavas & Zohra Bouamra Mechemache, 2006. "The Economic Efficiency of Policy Reform and Partial Market Liberalization under Transaction Costs," Bulletin of Economic Research, Wiley Blackwell, vol. 58(3), pages 161-191, July.
    7. James E. Anderson & J. Peter Neary, 2004. "Welfare vs. Market Access: The Implications of Tariff Structure for Tariff Reform," NBER Working Papers 10730, National Bureau of Economic Research, Inc.
    8. Sajal Lahiri & Anjum Nasim, 2005. "Commercial Policy Reform in Pakistan: Opening up the Economy under Revenue Constraints," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(6), pages 723-739, November.
    9. James E. Anderson & J. Peter Neary, 1996. "A New Approach to Evaluating Trade Policy," Review of Economic Studies, Oxford University Press, vol. 63(1), pages 107-125.
    10. Martin, Will & Anderson, James E., 2005. "Costs of taxation and the benefits of public goods : the role of income effects," Policy Research Working Paper Series 3700, The World Bank.
    11. Kreickemeier, Udo & Raimondos-Møller, Pascalis, 2008. "Tari[ff]-tax reforms and market access," Journal of Development Economics, Elsevier, vol. 87(1), pages 85-91, August.
    12. Panagariya, Arvind, 1990. "How should tariffs be structured?," Policy Research Working Paper Series 353, The World Bank.
    13. Lahiri, Sajal & Nasim, Anjum & Ghani, Jawaid, 2000. "Optimal second-best tariffs on an intermediate input with particular reference to Pakistan," Journal of Development Economics, Elsevier, vol. 61(2), pages 393-416, April.
    14. 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.
    15. Philip L. Brock & Stephen J. Turnovsky, 1992. "The Growth and Welfare Consequences of Differential Tariffs With Endogenously-Supplied Capital and Labor," NBER Working Papers 4011, National Bureau of Economic Research, Inc.
    16. Peter Neary & James E. Anderson, 2013. "Revenue Tariff Reform," Economics Series Working Papers 688, University of Oxford, Department of Economics.
    17. Anderson, James E., 1997. "Revenue Neutral Trade Reform with Many Households, Quotas and Tariffs," Seminar Papers 626, Stockholm University, Institute for International Economic Studies.
    18. 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.
    19. James E. Anderson & Will Martin, 2011. "Costs of Taxation and Benefits of Public Goods with Multiple Taxes and Goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(2), pages 289-309, April.
    20. Anderson, James E, 1995. "Tariff-Index Theory," Review of International Economics, Wiley Blackwell, vol. 3(2), pages 156-173, June.

    More about this item

    Keywords

    Marginal cost of funds; trade reform;

    JEL classification:

    • F1 - International Economics - - Trade
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boc:bocoec:348. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/debocus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christopher F Baum (email available below). General contact details of provider: https://edirc.repec.org/data/debocus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.