Tariffs, Optimal Taxes, and Collection Costs
April 1, 1992
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Summary
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.
Subject: Consumption taxes, Demand elasticity, Economic theory, Optimal taxation, Tariffs, Tax policy, Taxes, Taxes on trade
Keywords: collection cost, consumer demand, Consumption taxes, Demand elasticity, excess demand, open economy, Optimal taxation, public goods, tariff structure, Tariffs, tax rate, Taxes on trade, trade tax, utility function, WP
Pages:
34
Volume:
1992
DOI:
Issue:
028
Series:
Working Paper No. 1992/028
Stock No:
WPIEA0281992
ISBN:
9781451844573
ISSN:
1018-5941
