Working Paper: CEPR ID: DP5889
Authors: Udo Kreickemeier; Pascalis Raimondos-Moller
Abstract: Reducing tariffs and increasing consumption taxes is a standard IMF advice to countries that want to open up their economy without hurting government finances. Indeed, theoretical analysis of such a tariff-tax reform shows an unambiguous increase in welfare and government revenues. The present paper examines whether the country that implements such a reform ends up opening up its markets to international trade, i.e. whether its market access improves. It is shown that this is not necessarily so. We also show that, comparing to the reform of only tariffs, the tariff-tax reform is a less efficient proposal to follow both as far as it concerns market access and welfare.
Keywords: Consumption Tax Reform; Market Access; Tariff Reform
JEL Codes: F13; H20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reduction in tariffs (T) (F16) | Market access (MA) (L10) |
| Increase in consumption taxes (C) (H29) | Market access (MA) (L10) |
| Reduction in tariffs (T) and Increase in consumption taxes (C) (H29) | Imports (M) (F14) |
| Reduction in tariffs (T) and Increase in consumption taxes (C) (H29) | Welfare (I38) |
| Reduction in tariffs (T) and Increase in consumption taxes (C) (H29) | Government revenues (H29) |
| Reduction in tariffs (T) (F16) | Welfare (I38) |
| Increase in consumption taxes (C) (H29) | Welfare (I38) |