Working Paper: NBER ID: w1712
Authors: Joshua Aizenman
Abstract: This paper derives the dependency of optimal tariff and inflation tax on tax collection and enforcement costs. The analysis is done for a small, open economy. The existence of such costs can justify tariff and inflation tax policies as optimal revenue-raising devices. This paper suggests that greater government demand for revenue will increase the use of inflation and tariffs as revenue devices. The analysis derives elasticity rules that tie optimal tariff and inflation rates to the costs of tax collection.
Keywords: inflation; tariffs; tax enforcement; public finance; revenue generation
JEL Codes: H21; H25; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher government revenue demands (H29) | Increased reliance on inflation taxes and tariffs (H29) |
| High collection costs for consumption taxes (H26) | Increased use of tariffs and inflation taxes (H29) |
| Collection costs (A30) | Optimal tariff rate (H21) |
| Collection costs (A30) | Optimal inflation tax rates (H21) |