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 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.     

Welfare‐improving Coordinated Tariff and Sales Tax Reforms under Imperfect Competition

This paper studies the welfare effects of coordinated domestic sales tax reform associated with a reduction of the import tariff under imperfect competition. We set up a simple oligopoly trading model where domestic and exporting firms compete in the home market. We show that, if the initial levels of import tariff and sales tax are positive, there always exist welfare‐improving sales tax reforms. In some cases, a reduction of the sales tax accompanied by a reduction of the import tariff increases social welfare, whereas in other cases, raising the sales tax can increase social welfare.     

Welfare‐ and Revenue‐Enhancing Tariff and Tax Reform under Imperfect Competition

We examine welfare and revenue effects of tariff and tax reform in a country importing final and intermediate goods, both of which are produced under imperfect competition. We consider two reform strategies. First, lower the sum of a consumption tax and a tariff on the intermediate good, and leave the sum of the consumption tax and a tariff on the final good unchanged. Second, lower the former and change the latter to leave government revenue unchanged. We specify conditions under which each reform strategy raises welfare without decreasing government revenue.     

Income Tax, Property Tax, and Tariff in a Small Open Economy

Why do some countries enjoy high economic growth rates while some suffer in “low-growth traps”? Why are tax policies in different countries so different? Some suggest that it is exactly these differences in government policies which contribute to the difference in economic growth rates. This paper considers a small open economy which sustains its economic growth by adopting new technologies. When the value of initial wealth is “relatively small,” policies which promote growth most result in the highest welfare. In other cases, policies that discourage growth most may be welfare-maximizing.     

A Supply and Demand Exposition of a Constitutional Tax Loophole: The Case of Tariff Symmetry

The U.S. Constitution permits import tariffs but bans export duties. Yet import taxes are de facto export taxes, just as export taxes are de facto import taxes. Access to this symmetry proposition has been limited by its illustration being in daunting analytics largely restricted to international economics. This is unfortunate. Tariff symmetry exposes a tax loophole of constitutional proportions, a case where economics trumps the intentions of America's Founding Fathers. Moreover, tariff revenue was the U.S. government's pivotal revenue source from 1789 until the 1913 constitutional sanctioning of the income tax. Because U.S. exports were heavily agricultural, tariff symmetry implies that federal taxation had an export dimension with disparate economic and regional consequences. By making tariff symmetry more accessible, this paper lowers the cost of examining important issues.     

Imperfect Tax Compliance and the Optimal Provision of Public Goods

Our aim in this paper is to investigate whether the presence of imperfect income tax compliance affects the optimal provision of public goods within a framework in which public expenditure is financed by a general income tax that also accomplishes redistributive goals. We first derive the income tax structure, and then a generalized Samuelson rule. We argue that, under imperfect income tax compliance, it is desirable to distort public–good supply downwards, in the sense that the sum of marginal rates of substitution between public and private consumption must exceed their marginal rate of transformation.     

The Optimal Linear Income Tax Model: Utility or Equivalent Income?

This paper compares the use of equivalent income with that of utility, in the social welfare function, in optimal income tax models. Equivalent income is a money metric welfare measure that, unlike utility, is not affected by monotonic transformations of utility. The use of equivalent income is found to produce an optimal tax rate that is more sensitive to the degree of inequality aversion, compared with the use of utility. With Cobb-Douglas and CES utility functions, the optimal tax rate is the same for utility and equivalent income where relative inequality aversion is unity. When using equivalent incomes, the case for high marginal rates does not depend on the assumption of a very low elasticity of substitution between consumption and leisure.     

Tax Principles and Coordination of Trade and Domestic Policies Under Imperfect Competition

We construct an exporting monopoly model to compare destination‐ and origin‐based commodity taxes in a context of a trade and domestic tax reform. We show that an export tax reduction and a change in destination (resp. origin) tax that fix the world price is strictly Pareto‐improving (resp. deteriorating), which holds whether markets are integrated or segmented. This result may provide a new rationale for preferring the destination‐based consumption tax to the origin‐based production tax that has been discussed in the literature of tax harmonisation and tax competition.     

Energy Tax and Competition in Energy Efficiency: The Case of Consumer Durables

The purpose of this paper is to analyze the role of anenergy tax on technical improvements and on prices ofconsumer durables induced by strategic competition inenergy efficiency. If the gasoline tax is raised thisdoes in principle not affect the producers of carsbecause the motorist pays for it in terms of a highercost of using the car. This, however, affects the unitsales of car producers because of substitution towardsother modes of transportation. A second element ofreaction to energy price variation is an indirect oneand relates to the effect of energy prices ontechnology. Competition forces car producers todevelop more energy efficient cars in order to reducethe cost of using a car. This indirect effect canpartly offset the direct effect of higher energyprices on demand if it is profitable for theautomobile industry to engineer more energy efficientequipment. We will analyze the impact of an energy taxon energy efficiency and on the price of a durablegood. This will be done within the framework of aduopoly competing in prices and in the energyefficiency of its products. The government chooses awelfare maximizing energy tax as an incentive toinnovate. Then we will analyze a strategic two-stagedecision process in which the duopolists first decideabout energy efficiency and then compete in prices.     

The Optimal Tariff Formula in a Two-Period Economy

The optimal tariff formula is derived for a large country trading both consumption goods and an investment good in a two-period economy. The formula greatly simplifies the results of the standard one-period economy where both consumption goods and real capital are traded with or without a non-traded good; in particular, the results do not depend on the relative intensities of the two goods.
JEL Classification Numbers: D11, F11, F34.     

企业契约的不完备性及其后果

本文在梳理新制度经济学关于企业契约性质理论的基础上,分析了契约不完备性及其对企业契约形式的影响,并探讨了不完备契约的履约机制及其特点,由此得出的结论是:企业无论采取什么样的治理机制,都必须注重能够促进契约当事人相互合作的非正式规则的作用。     

The Repeated Prisoner's Dilemma with Imperfect Private Monitoring

In this paper, I study a repeated Prisoner's Dilemma game in which monitoring is private and imperfect. A partial folk theorem is proved for the case of almost perfect monitoring.     

Privatization in a Small Open Economy with Imperfect Competition

We look at privatization in a general equilibrium model of a small, tariff‐distorted, open economy. There is a differentiated good produced by both private and public sector enterprises. A reduction in government production in order to cut losses from such production raises the returns to capital and increases the tariff revenue, which are welfare‐improving. However, privatization also leads to lower wages and possibly fewer private brands. This lowers workers’ welfare, which may make privatization politically infeasible. Privatization can improve workers’ welfare with complementary reforms, e.g., attracting foreign investment or trade liberalization.     

Replacing Corporate Income Tax with a Cash Flow Tax

We design a parsimonious cash flow tax for Australia and estimate revenue effects. It allows immediate deduction of all capital expenditures, denies deductions of interest payments, and compensates negative cash flows at the same rate and time as it taxes positive cash flows. It allows taxpayer timing choice on implementation over 10 years. It has incentive effects comparable to lowering the corporate income tax rate to zero. It removes distortions that artificially favour debt over equity, short- over long-term investments, rents over competitive returns, large, established over small and new businesses, and conventional over innovative investments. It closes international tax evasion loopholes. Its spur to investment and timing of revenue impacts favours implementation in recession.     

Tax evasion with a conscience

How do moral concerns affect fraud and detection, for example, tax compliance and the need for audits? We propose answers by exploring a psychological $2\times 1\times 2\times 1$ inspection game which incorporates belief-dependent guilt, unawareness, and third-party audience effects. Novel conclusions are drawn regarding whose behavior is affected by moral concerns (it's the inspector's more than the inspectee's) as well as the policy issue whether to allow the use of a principle of public access whereby tax returns are made public information.     

The Welfare Effects of Differential Tariff Rates

This paper considers a two-country, three-good economy in which one country imposes tariffs on import goods at a uniform rate, while the other country engages in free trade. In such an economy, we examine the welfare effects of changing tariff rates toward differential tariffs from uniform tariffs.     

Environmental Valuation with Imperfect Information The Case of the Random Utility Model

This paper considers welfare analysis with therandom utility model (RUM) when perceptions ofenvironmental quality differ from objectivemeasures of environmental quality. Environmental quality is assumed to be anexperience good, so that while perceptions ofquality determine choices, ex postutility is determined by objective quality. Given this assumption, I derive a measure ofthe welfare impact of changes in environmentalquality, and I show how this new welfaremeasure differs from the traditional welfaremeasure developed by Hanemann (1982). This newwelfare measure provides an approach tomeasuring the value of information aboutenvironmental quality within the framework ofthe random utility model.     

Wine Tax Reform: The Impact of Introducing a Volumetric Excise Tax for Wine

The recent Henry tax review recommended substantial changes to Australian alcohol taxation policy. Here, the implications for the Australian wine industry of the Henry tax review's recommendations are explored using a computable general equilibrium model. The results show that: (i) replacement of the Wine Equalisation Tax (WET) with a revenue‐neutral volumetric excise tax would have a small negative impact on the wine industry; (ii) removal of the WET rebate would have a substantial negative impact on small wineries; and (iii) applying the packaged beer excise rate across all alcoholic beverages would have a notable negative impact on the wine industry.     

Fiscal Policy and Welfare in a Small Open Economy with Imperfect Competition

This paper considers the effects of fiscal policy in a two-sector small open economy, with unionized labour markets, and heterogeneous types of imperfect competition in the product markets. By making the marginal propensity to import endogenous, the paper shows that there is no robust or general relationship between the balanced-budget multiplier and the degree of imperfect competition. The fiscal multiplier with distortionary taxes can be positive or negative, depending on the size of the importables sector and the foreign firm's market share. The normative rule for fiscal policy depends on the size of the fiscal multiplier. An increase in economic activity is insufficient by itself to induce the government to over-supply public goods relative to the Walrasian case.