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Trade and Tax Reforms in a Cash‐in‐Advance Economy

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  • Theodore Palivos
  • Nikos Tsakiris

Abstract

We examine the effects of both tariff‐only and coordinated trade‐tax reforms on market access, government revenue, and welfare for a small monetary economy, under the assumption that a certain fraction of purchases of each good must be financed with cash held in advance. We show that if the cash requirement ratio in the exportable sector is greater than that in the importable, then, contrary to previous results, (i) a uniform radial reduction of tariffs has ambiguous effects on both welfare and market access, (ii) tariff and consumption tax reforms that leave consumer prices unchanged may be more efficient in improving market access and welfare than a reform that involves only tariffs, and (iii) export and production tax reforms that keep producer prices unchanged may be welfare deteriorating.

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  • Theodore Palivos & Nikos Tsakiris, 2011. "Trade and Tax Reforms in a Cash‐in‐Advance Economy," Southern Economic Journal, John Wiley & Sons, vol. 77(4), pages 1014-1032, April.
    • Handle: RePEc:wly:soecon:v:77:y:2011:i:4:p:1014-1032
    DOI: 10.4284/0038-4038-77.4.1014
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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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