Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution

J.E. Ligthart, G.C. van der Meijden

Research output: Working paperDiscussion paperOther research output

226 Downloads (Pure)

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.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages51
Volume2010-61
Publication statusPublished - 2010

Publication series

NameCentER Discussion Paper
Volume2010-61

Fingerprint

Tariffs
Tax
Informal sector
Informality
Tariff reform
Agricultural sector
Consumption tax
Factor markets
Dynamic effects
Developing economies
Revenue
Efficiency gains
Import substitution
Government revenue
Consumer prices
Macroeconomic models
Import
Destination

Keywords

  • Tariff reform
  • consumption tax reform
  • informal sector
  • home production
  • transitional dynamics
  • overlapping generations
  • second-best outcome

Cite this

Ligthart, J. E., & van der Meijden, G. C. (2010). Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution. (CentER Discussion Paper; Vol. 2010-61). Tilburg: Macroeconomics.
Ligthart, J.E. ; van der Meijden, G.C. / Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution. Tilburg : Macroeconomics, 2010. (CentER Discussion Paper).
@techreport{59182d967d654259b74c64531c25ad86,
title = "Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution",
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.",
keywords = "Tariff reform, consumption tax reform, informal sector, home production, transitional dynamics, overlapping generations, second-best outcome",
author = "J.E. Ligthart and {van der Meijden}, G.C.",
note = "Pagination: 51",
year = "2010",
language = "English",
volume = "2010-61",
series = "CentER Discussion Paper",
publisher = "Macroeconomics",
type = "WorkingPaper",
institution = "Macroeconomics",

}

Ligthart, JE & van der Meijden, GC 2010 'Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution' CentER Discussion Paper, vol. 2010-61, Macroeconomics, Tilburg.

Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution. / Ligthart, J.E.; van der Meijden, G.C.

Tilburg : Macroeconomics, 2010. (CentER Discussion Paper; Vol. 2010-61).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution

AU - Ligthart, J.E.

AU - van der Meijden, G.C.

N1 - Pagination: 51

PY - 2010

Y1 - 2010

N2 - 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.

AB - 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.

KW - Tariff reform

KW - consumption tax reform

KW - informal sector

KW - home production

KW - transitional dynamics

KW - overlapping generations

KW - second-best outcome

M3 - Discussion paper

VL - 2010-61

T3 - CentER Discussion Paper

BT - Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution

PB - Macroeconomics

CY - Tilburg

ER -

Ligthart JE, van der Meijden GC. Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution. Tilburg: Macroeconomics. 2010. (CentER Discussion Paper).