## Tax Policy and Trade Liberalization: An Application to Mexico

_IMF Working Papers, December 1, 1992_

## Source details

**Canonical URL:** [Tax Policy and Trade Liberalization: An Application to Mexico](https://www.imf.org/en/publications/wp/issues/2016/12/30/tax-policy-and-trade-liberalization-an-application-to-mexico-859)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/30/tax-policy-and-trade-liberalization-an-application-to-mexico-859/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/30/tax-policy-and-trade-liberalization-an-application-to-mexico-859/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/30/tax-policy-and-trade-liberalization-an-application-to-mexico-859/bundle-manifest.json)

## Bibliographic details
- Authors: Andrew Feltenstein
- Published: December 1, 1992
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451853025.001

---

### Summary
- A dynamic general equilibrium model of an open economy is constructed and used to examine issues of trade liberalization in Mexico.
- The analysis focuses on the fiscal implications of quotas and tariffs and the effects of their removal.
- Key caution: the results are highly sensitive to behavioral shifts in exports given the nature of the trade reform being undertaken.

### Major findings
- In the short run, there may be negative revenue effects from tariff liberalization.
- To compensate for revenue losses from tariff reduction, it may be necessary to raise domestic taxes in the short run.
- The magnitude and direction of fiscal effects are highly sensitive to behavioral shifts in exports; such shifts are quite likely.

### Policy implications and recommendations
- Prepare for possible short-run fiscal revenue shortfalls following tariff liberalization.
- Consider temporary or permanent adjustments to domestic tax policy to offset tariff revenue losses.
- Monitor export behavior closely during and after trade liberalization, since export responses critically affect fiscal outcomes.

---


_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/tax-policy-and-trade-liberalization-an-application-to-mexico-859_