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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/38959
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| Title: | | Coordinated tax-tariff reforms, informality, and welfare distribution  |
| Authors: | | Ligthart, Jenny E. van der Meijden, Gerard C. |
| Issue Date: | | 2010 |
| Series/Report no.: | | CESifo working paper Public Finance 3107 |
| Abstract: | | The paper studies the revenue, efficiency, and distributional implications of a simple strategy of offsetting tariff reductions with increases in destination-based consumption taxes so as to leave consumer prices unchanged. We employ a dynamic micro-founded macroeconomic model of a small open developing economy, which features an informal sector that cannot be taxed, a formal agricultural sector, and an import-substitution sector. The reform strategy increases government revenue, imports, exports, and the informal sector. In contrast to Emran and Stiglitz (2005), who ignore the dynamic effects of taxes and tariffs on factor markets, we find an efficiency gain, which is unevenly distributed. Existing generations benefit more than future generations, who - depending on pre-existing tax and tariff rates and the informal sector size - even may become worse off. |
| Subjects: | | tariff reform consumption tax reform informal sector home production transitional dynamics overlapping generations second-best outcome |
| JEL: | | E26 F11 F13 H20 H26 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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