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Tariffs, Optimal Taxes, and Collection Costs

Author

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  • Mr. Dubravko Mihaljek

Abstract

This paper studies an optimal tax problem for a small open economy where collecting taxes is costly. It is shown that, in the presence of collection costs modeled as an increasing function of the tax rate: (a) the standard rules of optimal commodity taxation (the Ramsey, the inverse elasticity, the Corlett-Hague rules) may no longer be valid; (b) tariffs may replace domestic taxes as a second-best revenue-raising device; and (c) the optimal tariff/tax structure may be uniform rather than differentiated.

Suggested Citation

  • Mr. Dubravko Mihaljek, 1992. "Tariffs, Optimal Taxes, and Collection Costs," IMF Working Papers 1992/028, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1992/028
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    Cited by:

    1. Kodjo Adandohoin & Vigninou Gammadigbe, 2022. "The revenue efficiency consequences of the announcement of a tax transition reform: The case of WAEMU countries," African Development Review, African Development Bank, vol. 34(S1), pages 195-218, July.

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