IMF Working Papers

Coordinating Tariff Reduction and Domestic Tax Reform

Author/Editor:

Michael Keen ; Jenny E Ligthart

Publication Date:

July 1, 1999

Electronic Access:

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Summary:

A key obstacle to fundamental tariff reform in many developing countries is the revenue loss that it ultimately implies. This paper establishes a simple and practicable strategy for realizing the efficiency gains from tariff reform without reducing public revenues, showing that for a small open economy, a cut in tariffs combined with a point-for-point increase in domestic consumption taxes increases both welfare and public revenues. Increasingly stringent conditions are required, however, to ensure unambiguously beneficial outcomes from this reform strategy when allowance is made for such important features as nontradeable goods, intermediate inputs, and imperfect competition.

Series:

Working Paper No. 1999/093

Subject:

Consumer prices Consumption Consumption taxes National accounts Prices Producer prices Tariffs Taxes