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Distortionary Domestic Taxation and Pareto-Efficient International Trade

  • Jeremy Edwards
  • Ronnie Schöb

This paper characterises the domestic tax systems which yield Pareto-efficient outcomes for a two-country world economy in which each country uses distortionary taxes. Such outcomes are compared with the Nash equilibria of the world economy when each country uses its domestic tax system to influence ist terms of trade. In such circumstances, the implementation of domestic tax systems which achieve a globally Pareto-efficient outcome as a Nash equilibrium will be very difficult, for two main reasons: the ability of countries to use tax policy with respect to non-traded goods for protection, and the fact that Pareto-efficient tax structures depend on countries‘ distributional judgements, which are hard to measure objectively.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2002/wp-cesifo-2002-01/635.PDF
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 635.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_635
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  1. Dixit, Avinash, 1985. "Tax policy in open economies," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 6, pages 313-374 Elsevier.
  2. Vandendorpe, Adolf L., 1972. "Optimal tax structures in a model with traded and non-traded goods," Journal of International Economics, Elsevier, vol. 2(3), pages 235-256, August.
  3. Diamond, P. A., 1975. "A many-person Ramsey tax rule," Journal of Public Economics, Elsevier, vol. 4(4), pages 335-342, November.
  4. Lockwood, Ben, 1997. "Can international commodity tax harmonisation be Pareto-improving when governments supply public goods?," Journal of International Economics, Elsevier, vol. 43(3-4), pages 387-408, November.
  5. Robin Boadway & Shlomo Maital & Martin Prachowny, 1973. "Optimal Tariffs, Optimal Taxes and Public Goods," Working Papers 120, Queen's University, Department of Economics.
  6. Turunen-Red, Arja H & Woodland, Alan D, 1991. "Strict Pareto-Improving Multilateral Reforms of Tariffs," Econometrica, Econometric Society, vol. 59(4), pages 1127-52, July.
  7. Diewert, W E & Turunen-Red, A H & Woodland, A D, 1989. "Productivity- and Pareto-Improving Changes in Taxes and Tariffs," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 199-215, April.
  8. Turunen-Red, Arja H & Woodland, Alan D, 1990. "Multilateral Reform of Domestic Taxes," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 160-86, January.
  9. Michael Keen, 1993. "The welfare economics of tax co-ordination in the European Community : a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 14(2), pages 15-36, February.
  10. Hammond, Peter J, 1979. "Straightforward Individual Incentive Compatibility in Large Economies," Review of Economic Studies, Wiley Blackwell, vol. 46(2), pages 263-82, April.
  11. Michael Keen & David E. Wildasin, 2000. "Pareto Efficiency in International Taxation," CESifo Working Paper Series 371, CESifo Group Munich.
  12. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-78, June.
  13. Keen, Michael, 1989. "Pareto-improving indirect tax harmonisation," European Economic Review, Elsevier, vol. 33(1), pages 1-12, January.
  14. Keen, Michael, 1987. "Welfare effects of commodity tax harmonisation," Journal of Public Economics, Elsevier, vol. 33(1), pages 107-114, June.
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