Growth,revenue, and welfare effects of tariff and tax reform: Win–win–win strategies |
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| Institution: | 1. University of Bordeaux, affiliated with the Groupe de Recherche en Economie Théorique et Appliquée, Avenue Léon Duguit, 33600 Pessac, France;2. Country Economist for Afghanistan, The World Bank, Kabul, Afghanistan;1. CERDI and CRCGM, University Clermont Auvergne, Clermont-Ferrand, France;2. School of Economics & CERDI, University Clermont Auvergne, 26 Avenue Léon Blum, 63000, Clermont-Ferrand, France;3. LEO, University of Orléans, France;1. School of Mathematics and Information Science, Wenzhou University, Wenzhou, Zhejiang 325035, China;2. School of Life and Environmental Science, Wenzhou University, Wenzhou, Zhejiang 325035, China;3. Key Laboratory for Subtropical Oceans & Lakes Environment and Biological Resources Utilization Technology of Zhejiang, Wenzhou University, Wenzhou, Zhejiang 325035, China;4. Department of Mathematics, Texas A&M University-Kingsville, University-Kingsville, Kingsville, TX 78363-8202, USA |
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| Abstract: | We examine growth, revenue, and welfare effects of tariff and tax reform with a two-good, two-factor endogenous growth model. Learning-by-doing and intersectoral knowledge spillovers contribute to endogenous growth consistent with incomplete specialization. We obtain two main results. First, trade liberalization raises (or lowers) the growth rate if and only if the import sector is more effective-labor-intensive (or capital-intensive). Second, we can attain growth, revenue, and welfare gains by combining consumer–price–neutral tariff and tax reform for growth enhancement with an additional rise in the consumption tax on the less distorted good. |
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