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Tariff revenue sharing rules in a customs union: a new methodology applied to the MERCOSUR case

  • Marcel Vaillant

    (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

  • Alvaro Lalanne

Mechanisms for sharing the common tariff revenue in a customs union have received little attention in the literature (Syropoulus, 2003). Comparative analyses show that in past and current customs unions two main mechanisms are been used: generals rules and common funds. In this paper, a new mechanism which is fiscally neutral is developed, based on the final consumption criterion. The new methodology computes the extrazone imports and the common tariff revenue incorporated in intrazone trade both directly and indirectly. It extends the methodology of Lumega-Neso, Olarreaga and Schiff (2005) which was developed in a different context (measuring the effects of trade opening on technical progress). The technique developed here employs input-output tables together with observed trade flows, and is applied in the case of MERCOSUR. This methodology is useful not only because it offers a new option to policymakers but also because it leads to a new characterization of interregional trade flows. The paper derives interesting results in this respect. Intraregional trade in MERCOSUR comprises mainly locally produced goods with little extrazone import content, though there are important differences among MERCOSUR members. Brazil’s intrazone exports incorporate the most extrazone imports and hence should be the main net contributor to the compensation fund created by the proposed mechanism.

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File URL: http://decon.edu.uy/publica/2007/0707.pdf
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Paper provided by Department of Economics - dECON in its series Documentos de Trabajo (working papers) with number 0707.

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Length: 33 pages
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:ude:wpaper:0707
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  1. Marcel Vaillant, 2005. "Asymmetries and Disparities in the Economic Integration of a South-South Customs Union," IDB Publications (Working Papers) 24738, Inter-American Development Bank.
  2. Syropoulos, Constantinos, 2003. "Rules for the disposition of tariff revenues and the determination of common external tariffs in customs unions," Journal of International Economics, Elsevier, vol. 60(2), pages 387-416, August.
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