English, Article, Journal or magazine article edition: Trade Reform with a Government Budget Constraint James E. Anderson

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Bookmark: http://trove.nla.gov.au/version/73183
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Trade Reform with a Government Budget Constraint
Author
  • James E. Anderson
Physical Description
  • preprint
Notes
  • The theory of trade reform typically is based on a passive government budget constraint, in which changes in tariff revenue are costlessly offset by lump sum transfers. This paper offers a general framework for trade reform when the government budget constraint is active, such that tariff revenue cuts must be offset by public good decreases or other tax increases. The trade reform and public finance literatures are integrated to develop some useful and simple new expressions characterizing welfare improving trade reform. The expressions are operational with Computable General Equilibrium models. The theoretical analysis and an application to Korean data in 1963 cast doubt of the desirability of tariff cuts in convex competitive economies with active government budget constraints.
  • Marginal cost of funds, trade reform
  • RePEc:boc:bocoec:348
  • The standard theory of trade reform uses a passive government budget constraint, in which changes in tariff revenue are offset by changes in lump sum transfers. This paper offers a general framework for the analysis of trade reform when the government budget constraint is active, meaning that tariff revenue cuts must be offset by distortionary fiscal policy changes --- public good supply cuts or alternative tax increases. Useful and simple new expressions characterizing welfare improving trade reform compare the Marginal Cost of Funds (MCF) of trade taxes with the MCF of consumption taxes. The MCF expressions provide an intuitive index number which is operational with Computable General Equilibrium models. The theoretical analysis and an application to Korean data in 1963 both cast doubt on the desirability of tariff cuts in convex competitive economies with active government budget constraints.
  • RePEc:nbr:nberwo:5827
Language
  • English
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