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The Trade and Welfare Consequences of U.S. Export-Enhancing Tax Provisions

Author

Listed:
  • Mr. Stephen Tokarick
  • Don Rousslang

Abstract

The U.S. tax code contains two provisions that encourage exports by reducing the U.S. corporate income tax on export profits. An applied general equilibrium model of the U.S. economy is used to estimate the trade and welfare consequences of eliminating both tax provisions. We find that the provisions ameliorate the trade-discouraging effects of U.S. tariffs, but they also adversely affect the U.S. terms of trade to such an extent that eliminating them is likely to improve U.S. domestic welfare. While it is possible to find a “equivalent” tariff rate that replicates the effects on trade flows of removing the tax provisions, the welfare effects of a tariff differ importantly because a tariff interacts differently than the tax provisions with other distortions in the model.

Suggested Citation

  • Mr. Stephen Tokarick & Don Rousslang, 1994. "The Trade and Welfare Consequences of U.S. Export-Enhancing Tax Provisions," IMF Working Papers 1994/050, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:1994/050
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    Cited by:

    1. Mihir A. Desai & James R. Hines, Jr., 2001. "The Uneasy Marriage of Export Incentives and the Income Tax," NBER Chapters, in: Tax Policy and the Economy, Volume 15, pages 41-94, National Bureau of Economic Research, Inc.
    2. Mihir A. Desai & James R. Hines Jr., 2001. "Exchange Rates and Tax-Based Export Promotion," NBER Working Papers 8121, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    WP; import tariff; export profits; tax provisions; demand curve; tax provision; export tax breaks; traded good; Tariffs; Exports; Imports; Terms of trade; Consumption; Global;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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