Welfare implications of trade liberalization and fiscal reform: A quantitative experiment

This paper studies the welfare implications of revenue-neutral trade liberalization and fiscal reform programs for developing economies using a multi-sector dynamic general equilibrium model of a small open economy. We analyze how different combinations of tariffs – on imported consumption goods, intermediate inputs, and capital goods – and taxes – on consumption, labor income and capital income – affect the transitional and long-run welfare. We report three main findings. First, trade liberalization programs financed by consumption and labor income taxes tend to result in substantial welfare gains, but financing the lost tariff revenue through capital income taxes can have an adverse impact on welfare. Second, a significant fraction of welfare changes is due to transitional effects stemming from the allocation of resources in response to changes in tariffs and taxes. Third, trade liberalization and fiscal reform programs often translate into much larger welfare gains in countries that are more open to international financial markets.     

Tariff and Consumption Tax Reforms in a Developing Tourism Economy

This paper examines the effects of a coordinated tax reform by replacing import tariffs with point-by-point increases in consumption taxes for a small-open developing tourism economy. Foreign tourists demand for the non-traded goods provided in the informal sector of the host economy, resulting in a tourism-induced terms-of-trade effect. The presence of inbound tourism lends a support to positive tariffs even for a small open economy. The indirect tax reform of this kind can increase residents’ welfare and government revenue when the initial tariffs are relatively larger to the consumption taxes.     

我国税收政策对经济增长的非线性效应研究——基于总量与结构效应双重视角的实证分析

全面分析与科学把握我国税收政策方向与节奏不仅事关政府宏观调控与驾驭经济能力的提升,更是实现有质量、有效益、可持续经济增长的关键。文章首先基于创新驱动经济增长的内生增长模型构建税收对经济增长影响的理论分析框架,然后采用MS-VAR模型与利用中国季度数据,从总量与结构双重视角实证考察我国税收政策对经济增长的影响,结果发现：一是当处于区制1时,无论是税收的总量抑或结构效应,均表现出非凯恩斯主义特征,但并不显著;二是当位于区制2时,税收对经济增长的总量影响表现为凯恩斯效应,而商品税与所得税对经济增长的影响存在显著差异。其中商品税与经济增长正相关,所得税与经济增长负相关。另外无论是税收的总量效应抑或结构效应,在继续维持各自区制内的稳定性方面表现都非常强,从一个区制向另一个区制发生转换的概率非常小。文章研究结论对于创新政府宏观调控方式与增强税收政策调控的前瞻性、针对性与有效性具有非常重要的理论与实际意义。     

消费税调节居民收入差距效果测度——基于ELES模型方法

基于ELES模型,对消费税影响城镇居民家庭不同收入群体的八大类商品消费支出效果进行测度,结果显示:消费税导致税后家庭可支配收入的基尼系数增大,说明现行消费税对中国大陆居民收入差距整体上不具有正向调节效果。消费税改革方向是在借鉴传统经典"最优商品税理论"思想基础上更多地关注公平目标,主要基于再分配目标调整消费税范围和提高边际税率。     

Beyond Border Barriers: The Liberalisation of Services Trade in Tunisia and Egypt

Tunisia and Egypt have both recently undertaken significant steps toward trade reform. They have committed to a partnership agreement with the European Union. Both countries have also joined the WTO and are participating in Doha Round discussions on the liberalisation of non‐tariff barriers on both goods and services trade. These developments provide an interesting context within which to investigate not only the changes in welfare associated with reforms affecting the trade in goods, but also the impacts of services liberalisation. Using open‐economy computable general equilibrium models for both Tunisia and Egypt, this paper explores the reasons why structural differences in these two economies imply different opportunities and challenges with trade reform and services liberalisation. The gains from eliminating barriers at the border for goods trade are significantly greater for Tunisia than Egypt. Both countries, however, gain substantially from liberalisation of foreign direct investment in services. Furthermore, economic growth is more evenly distributed across sectors than with liberalisation of trade in goods alone. In addition to reporting on the impact of alternative policies on income, output, employment and trade, sector‐level effects are also considered.     

Goods and factors liberalization under increasing returns to scale

This paper develops a general equilibrium model with alternative forms of import restrictions, international capital mobility, and taxes on the rate of return on foreign capital in the context of a small open economy using an external increasing returns technology. Within this framework, this paper analyses the price and welfare effects of import liberalization in the presence of tax on foreign capital and of factor flows liberalization in the presence of alternative forms of import restrictions. It is shown, among other things, that, in contrast to the existing literature on constant returns to scale economy, the optimal policy towards foreign factors is possibly tax under each form of import restrictions.     

The welfare and employment effects of trade and factor taxes with variable factor supply

This paper develops a general trade model with many traded goods, many internationally mobile factors, and with endogenous labor supply. Within this framework, the employment and welfare effects of taxes on trade, on wages and on the returns of the internationally mobile factors are examined. The employment maximizing and the first- and second-best tax structures are determined. The analysis identifies the conditions under which variable labor supply increases the welfare cost of a trade and a capital tax, and demonstrates the need for joint determination of taxes on trade and on the returns of factors in variable domestic supply.     

Consumer Welfare and Inefficiency Among Regulated Industries

While the issue of efficiency on the side of production is still not a settled question, it is generally agreed that competition is more conductive to efficiency—both allocative and X—than monopoly. When the monopoly is regulated, i.e., receiving a rate of return less than it would if left unregulated but greater than the market rate of return, both allocative and X-inefficiency result. Since the degree of inefficiency amounts to a tax on consumers, the question of inefficiency in production has a twin companion in the form of consumer welfare losses. This is particularly true for many public utilities upon which low income families spend a large proportion of their income. The quasi tax that the regulated monopolist exacts neither generates a flow of public goods nor increases returns to shareholders. It is a particularly burdensome levy because the rate structure is highly regressive.     

Distributional Effects of Public Investment when Wealth and Classes are Back

In developed economies, wealth inequality is high, while public capital is underprovided. Here, we study the impact of heterogeneity in saving behavior and income sources on the distributional effects of public investment. A capital tax is levied to finance productive public capital in an economy with two types of households: high income households who save dynastically and middle income households who save for retirement. We find that inequality is reduced the higher the capital tax rate is and that low tax rates are Pareto‐improving. There is no clear‐cut trade‐off between efficiency and equality: middle income households’ consumption is maximal at a capital tax rate that is higher than the rate which maximizes high income households’ consumption.     

Non-traded goods and optimal trade policy in a cash-in-advance economy

This paper develops a standard trade model of a small open monetary economy with two traded and one non-traded goods. Money is introduced through a generalized cash-in-advance constraint where the share of goods purchases that must be made using cash, varies across sectors. We find that free trade may be harmful so that alternative policy instruments may be considered to improve welfare. In addition, we study and compare the optimal tariff formula and the optimal consumption tax structure. In the presence of a monetary distortion of the non-traded good, a consumption tax may not Pareto dominate a tariff although the latter bears an additional production burden. This corroborates the theory of second best.     

The Impact of Tax Rebate on Used Car Market: Evidence from Thailand

Tax incentives are one of the most important fiscal tools at the government's disposal that can be used to influence the economy. Often, policies are targeted to spur investment in durable goods. In this article, we focus on the impact that a primary‐market tax incentive has on the secondary market for durable goods – specifically, the automobile market. Using a first‐car tax rebate scheme implemented in Thailand in 2011 as a natural experiment, we find that the policy reduces the listing prices of used cars in the tax‐eligible category by 6.75% to 10.31%.     

Effects of a Tax‐Time Savings Intervention on Use of Alternative Financial Services among Lower‐Income Households

Alternative financial services (AFS) such as check cashing and payday loans may help unbanked households meet transaction and credit needs, yet often at a very high price. Saving tax refunds can help low‐ and moderate‐income (LMI) households build emergency savings as a way to reduce dependence on AFS and cope effectively with irregular cash flows and financial shocks. This study examined the impact on AFS use of message‐based interventions encouraging LMI households to save their refunds when they electronically filed their federal income tax returns. We found that 3 out of 18 interventions resulted in statistically significant reductions in credit‐related AFS use with small effect sizes. None of the interventions resulted in reduced transaction‐related AFS use. Other factors—especially prior AFS use and financial shocks—were strong predictors of AFS. Financially vulnerable households may need additional opportunities and protections to reduce dependence on AFS.     

The economics of taxes with equivalent effects to tariffs

Developing countries are faced with the issue of tariff replacement at an early stage of their development, due to their increased commitments through Free Trade Arrangements with developed countries. As tariff replacement through VAT, or more sophisticated tools such as income tax, is neither practically nor economically desirable in these economies, this paper investigates the effects of an alternative replacement tax that only affects categories of goods not produced locally. This tax, denominated tax with equivalent effects to tariffs (TEET), is indeed a consumption tax as it concerns all goods, whether imported or potentially produced in the country. Based on a simple diagrammatic approach, the study shows that this tool tends to generate more welfare than tariffs if final prices of goods are left unchanged. It shows that a government can continue to maintain its revenues and increase the welfare of consumers through this fiscal replacement. Additionally, the political and economic reserves associated with this tool are discussed. The TEET are therefore useful mainly for small and non-diversified economies. It also remains that the use of this tool is, in practice, conditioned by the level of tolerance of developed countries, which tend to prohibit it in bilateral agreements with developing countries.     

逆周期资本账户管制对宏观经济稳定与社会福利改善的作用

资本管制能否有效抵御外部冲击实现宏观经济稳定存在争论,本文通过构造开放经济的DSGE模型研究投资限制和逆周期金融交易税等资本管制工具对于实现宏观经济稳定和改善社会福利的作用。通过比较不同政策安排下主要宏观经济变量的波动性和脉冲响应函数可以发现,采用逆周期金融交易税作为资本管制工具在抵御外部冲击、维持宏观经济稳定方面具有比较优势。设置投资限制的资本管制促进了货币政策的独立性,可以使货币政策专注管理国内的经济增长和通货膨胀问题。通过不同政策安排下的福利分析可知,增加投资国外资产的限制对社会福利的增进起到负面作用,增加逆周期金融交易税的资本管制却可以减轻由投资限制导致的资源配置扭曲,从而放松投资国外资产的限制从根本上提高社会福利。所以,在资本管制工具的选择上,采取逆周期金融交易税可能比采用投资限制更优。随着资本账户开放的基本条件不断成熟,用金融交易税取代投资限制更符合浮动汇率制和自由兑换的资本账户的需求。     

Distributive Policies and Economic Growth: An Optimal Taxation Approach

In an infinite‐horizon endogenous growth model a capital income cum investment subsidy tax is considered to investigate if distribution of income towards the non‐accumulated factor of production (labour) retards growth and if capital income taxes are bad instruments to finance investment subsidies. The paper identifies conditions under which the tax scheme is better for growth than other distorting tax schemes. In the model a pro‐labour government acts growth maximizing and distributing income towards labour raises growth. A pro‐capital government's preferred policy is not growth maximizing under the tax scheme, but may generate higher growth than its optimal policy under other tax schemes.     

Valuation effects of recent corporate dividend and income trust distribution tax changes

We analyze the valuation effects of the Canadian federal government's announcement on November 23, 2005 of a reduction in the taxation of corporate dividends and the announcement on October 31, 2006 of a plan to eliminate the tax‐deductibility of income trust distributions. Though high dividend stocks and income trusts reacted positively to the 2005 announcement, the abnormal returns were greater for income trusts. Conversely, both securities reacted negatively to the 2006 announcement with the decline bigger for income trusts. The larger price reactions of income trusts and the lack of statistical significance in the cross‐sectional tests of the abnormal returns suggest that the popularity of income trusts in Canada was mostly driven by their favourable income tax status. The implications of these findings for scholarship and for practice are discussed. Copyright © 2008 ASAC. Published by John Wiley & Sons, Ltd.     

Uneven Development and Bilateral Conflict

We consider the dynamics of bilateral conflict within the framework of a standard two‐country, two‐sector model of international trade with increasing returns in one sector. Free trade leads to asymmetric equilibria among otherwise identical countries and, in some circumstances, to uneven development in the sense of persistent disparities in wages, income and welfare. In the latter case, distortionary industrial policy by the less developed country may be welfare enhancing. When the dynamics of policy change are endogenized, the model gives rise to periodic changes in industrial leadership or leapfrogging. Implications of this phenomenon for the empirical literature on convergence are discussed.     

CAPITAL INFLOW UNDER VOLUNTARY EXPORT RESTRAINT

This paper investigates the welfare consequence of exogenous capital inflow for the host country when the source country implements ‘voluntary export restraint’. In an imperfectly competitive market with an increasing returns to scale (IRS) sector, we show the possibility of welfare immiserization. Two channels are identified leading to immiserization. First, and this is direct, resource reallocation following capital inflow can squeeze the underproduced sector and reduce welfare. Second, contraction of the IRS sector can raise the return to capital, even when the price of the capital‐intensive importable falls unambiguously. Thus, even with an improvement in commodity terms of trade, the factor terms of trade can worsen and reduce welfare.     

Would Freeing Up World Trade Reduce Poverty and Inequality? The Vexed Role of Agricultural Distortions

Trade policy reforms in recent decades have sharply reduced the distortions that were harming agriculture in developing countries, yet global trade in farm products continues to be far more distorted than trade in non‐farm goods. Those distortions reduce some forms of poverty and inequality but worsen others, so the net effects are unclear without empirical modelling. This article summarises a series of new economy‐wide global and national empirical studies that focus on the net effects of the remaining distortions to world merchandise trade on poverty and inequality globally and in various developing countries. The global Linkage model results suggest that removing those remaining distortions would reduce international inequality, largely by boosting net farm incomes and raising real wages for unskilled workers in developing countries, and would reduce the number of poor people worldwide by 3 per cent. The analysis based on the Global Trade Analysis Project model for a sample of 15 countries, and nine stand‐alone national case studies, all point to larger reductions in poverty, especially if only the non‐poor are subjected to increased income taxation to compensate for the loss of trade tax revenue.     

TRADE,NON‐SCALE GROWTH AND UNEVEN DEVELOPMENT

This paper investigates the relationship between trade and economic development using a two‐country, non‐scale growth model. Depending on the share of the expenditure for manufactured goods, we obtain two different results with regard to long‐run production patterns. Whether or not the follower country can catch up with the leader country in the long run depends on two factors: (1) the patterns of production in both countries and (2) the measure of economic welfare that is used, i.e. per capita income or per capita consumption.