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Trade Taxes Are Expensive

  • Can Erbil

    (Brandeis University & EcoMod)

This paper examines the welfare implications of trade reforms in the presence of a government budget constraint. There is consensus about gains from opening up to trade. The less investigated question is, whether a coordinated tax reform, where the tariff revenue cuts are compensated with increases in distortionary domestic taxes, will still be welfare improving or not. Are trade taxes an expensive tool to raise the necessary revenue for governments? This paper uses a CGE model to generate “Marginal Cost of Funds” (MCF) figures for 32 countries to answer this question. The results suggest that there are significant welfare gains from further trade liberalization, especially for developing countries.

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File URL: http://econwpa.repec.org/eps/it/papers/0409/0409002.pdf
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Paper provided by EconWPA in its series International Trade with number 0409002.

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Length: 30 pages
Date of creation: 05 Sep 2004
Date of revision:
Handle: RePEc:wpa:wuwpit:0409002
Note: Type of Document - pdf; pages: 30. Appendix is not for publication
Contact details of provider: Web page: http://econwpa.repec.org

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