Trade Taxes: Import Duties and Export Taxes

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Trade Taxes Import Duties and Export Taxes

• Professor Jane H. Leuthold
• Department of Economics
• University of Illinois at Urbana-Champaign

Econ 415 Fall 2000
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Topics for today

• Import duties and excise taxes
• Use and purpose
• Economic effects
• Export taxes and their economic effect
• Optimal export taxes

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Import Tariff - No Domestic Production
P
(local currency)
Dd
Tariff Revenue
Pm
Q0
Quantity
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Import Tariff - Competing Domestic Production
P
(local currency)
Dd
Sd
Pm
Q1
Q0
Quantity
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Import Tariff and Domestic Excise
P
(local currency)
Dd
Sd
Pm
Q1
Q0
Quantity
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Import Quota with No Tariff
P
(local currency)
Dd
Sd
Pm
Q1
Q0
Quantity
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Export Tax - No Domestic Demand Small Country Case
P
Sd
PW
Export tax Revenue
Q0
Quantity
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Export Tax - Domestic Demand Small Country Case
P
Sd
Dd
PW
Q1
Q0
Quantity
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Export Tax - No Domestic Demand Major Exporting
Country Case
P
DW
Sd
PW
Q2
Quantity
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Optimal export taxes
P
Sd
tki 1/?ki where ?ki is the country specific
long run elasticity of demand of commodity k.
PW
Q0
Quantity
What is the optimal export tax in this case?
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Optimal export duties, 1980
Source Sanchez-Ugarte and Modi, Optimality of
Export Duties
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Lab 11 Trade tax share model
Version 1 (Hitiris) trade tax share in total
taxes a0 a1 income a2 openness
a3 income
tax share in taxes Version 2 (Burgess and
Stern) import tax share in GDP b0 b1 income
b2 openness
b3 consumption tax share in GDP
Note openness is measured differently in the
two models.
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Next Time
Thurs Lab 11 Trade Tax Share Chat Should
the optimal trade tax share for a small open
economy be zero? Why or why not? Next week
Income Taxes Personal and Corporate