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The Optimal Tariff for Public Good and Public Input Provision

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  • Michael S. Michael

    (University of Cyprus)

Abstract

It is well known that when tariff revenue is distributed to consumers as a lump sum, the optimum policy for a small country is free trade because a tariff reduces its welfare. Many less-developed countries, however, use tariff revenue to finance the provision of public goods or public inputs, such as technical training or infrastruc ture. This article builds a small open economy model with three private goods—one imported, one exported, and one nontraded—and where the government uses tariff revenue to finance the provision of a public good or input. Within this framework, the article derives the optimum tariff formulas and efficiency rules for public good and public input provision and compares the latter with the efficiency rules when the provision of public goods is financed with consumption taxes.

Suggested Citation

  • Michael S. Michael, 1997. "The Optimal Tariff for Public Good and Public Input Provision," Public Finance Review, , vol. 25(1), pages 117-133, January.
    • Handle: RePEc:sae:pubfin:v:25:y:1997:i:1:p:117-133
    DOI: 10.1177/109114219702500107
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    References listed on IDEAS

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    1. Wildasin, David E, 1984. "On Public Good Provision with Distortionary Taxation," Economic Inquiry, Western Economic Association International, vol. 22(2), pages 227-243, April.
    2. Abe, Kenzo, 1992. "Tariff Reform in a Small Open Economy with Public Production," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(1), pages 209-222, February.
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    4. King, Mervyn A., 1986. "A pigovian rule for the optimum provision of public goods," Journal of Public Economics, Elsevier, vol. 30(3), pages 273-291, August.
    5. Feehan, James P., 1988. "Efficient tariff financing of public goods," Journal of International Economics, Elsevier, vol. 25(1-2), pages 155-164, August.
    6. Makoto Tawada & Kenzo Abe, 1984. "Production Possibilities and International Trade with a Public Intermediate Good," Canadian Journal of Economics, Canadian Economics Association, vol. 17(2), pages 232-248, May.
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    Cited by:

    1. Yoshitomo Ogawa & Nobuhiro Hosoe, 2020. "Optimal indirect tax design in an open economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(5), pages 1081-1107, October.
    2. Panos Hatzipanayotou & Michael S. Michael, 2001. "Public Goods, Tax Policies, and Unemployment in LDCs," Southern Economic Journal, John Wiley & Sons, vol. 68(1), pages 107-119, July.

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