Tariffs, Optimal Taxes, and Collection Costs

Author/Editor:

Dubravko Mihaljek

Publication Date:

April 1, 1992

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Series:

Working Paper No. 92/28

Subject:

English

Publication Date:

April 1, 1992

ISBN/ISSN:

9781451844573/1018-5941

Stock No:

WPIEA0281992

Format:

Paper

Pages:

34

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