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Tax Policy and Trade Liberalization: An Application to Mexico

Author

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  • Mr. Andrew Feltenstein

Abstract

We construct a dynamic general equilibrium model of an open economy and use it to examine issues of trade liberalization in Mexico. In particular, we consider the fiscal implications of quotas and tariffs and, accordingly, their removal. We show that, in the short run, there may be negative revenue effects from tariff liberalization, so that it may be necessary to raise domestic taxes to compensate for the tariff reduction. We also show that these results are highly sensitive to behavioral shifts in exports. Since such shifts are quite likely given the nature of the trade reform currently being undertaken, it is important that we qualify our results accordingly.

Suggested Citation

  • Mr. Andrew Feltenstein, 1992. "Tax Policy and Trade Liberalization: An Application to Mexico," IMF Working Papers 1992/108, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1992/108
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    Cited by:

    1. Isaac K. Ofori & Pamela E. Ofori & Simplice A. Asongu, 2021. "Towards Efforts to Enhance Tax Revenue Mobilisation in Africa: Exploring Synergies between Industrialisation and ICTs," Research Africa Network Working Papers 21/058, Research Africa Network (RAN).
    2. Marcelo M. Giugale & Mette J. Knudsen, 1996. "Protecting Jobs or Protecting Rents? Back-of-the-Envelope Arithmetic on Egypt's Car Industry," The World Economy, Wiley Blackwell, vol. 19(5), pages 545-553, September.
    3. Bevan, David, 1999. "Trade Liberalization and the Budget Deficit," Journal of Policy Modeling, Elsevier, vol. 21(6), pages 653-694, November.
    4. Agbeyegbe, Terence D. & Stotsky, Janet & WoldeMariam, Asegedech, 2006. "Trade liberalization, exchange rate changes, and tax revenue in Sub-Saharan Africa," Journal of Asian Economics, Elsevier, vol. 17(2), pages 261-284, April.
    5. Pamela E. Ofori & Isaac K. Ofori & Simplice A. Asongu, 2022. "Towards efforts to enhance tax revenue mobilisation in Africa: Exploring the interaction between industrialisation and digital infrastructure," Working Papers of the African Governance and Development Institute. 22/045, African Governance and Development Institute..

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