Coordinating Tariff Reduction and Domestic Tax Reform under Imperfect Competition

A major constraint on trade liberalization in many countries is the prospective loss of government revenue. Recent results, however, have established a simple and appealing strategy for overcoming this difficulty, whilst still realizing the efficiency gains from liberalization, in small, competitive...

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Bibliographic Details
Published inReview of international economics Vol. 13; no. 2; pp. 385 - 390
Main Authors Keen, Michael, Ligthart, Jenny E.
Format Journal Article
LanguageEnglish
Published Oxford, UK Blackwell Publishing Ltd 01.05.2005
Wiley Blackwell
SeriesReview of International Economics
Subjects
Competition
Economic efficiency
Economic models
Government revenue
Imperfect competition
International economics
Liberalization
Manycountries
Mathematical methods
Public economics
Public revenue
Studies
Tariffs
Tax reform
Trade liberalization
Trade policy
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Summary:A major constraint on trade liberalization in many countries is the prospective loss of government revenue. Recent results, however, have established a simple and appealing strategy for overcoming this difficulty, whilst still realizing the efficiency gains from liberalization, in small, competitive economies: combining tariff cuts with point‐for‐point increases in destination‐based consumption taxes unambiguously increases both national welfare and total government revenue. This note explores the implications of imperfect competition for this strategy. Examples are easily found in which this strategy unambiguously reduces domestic welfare.
Bibliography:istex:E796CF593E415A9B7A77823FF82B00AB62610049
ArticleID:ROIE510
We are grateful to an anonymous referee for useful comments. Errors and opinions are ours alone, not necessarily those of the staff, management or Executive Directors of the International Monetary Fund. Jenny Ligthart gratefully acknowledges financial support from the Dutch Ministry of Finance.
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ISSN:0965-7576
1467-9396
DOI:10.1111/j.1467-9396.2005.00510.x