{
  "title": "The Trade and Welfare Consequences of U.S. Export-Enhancing Tax Provisions",
  "publication": "IMF Working Papers, May 1, 1994",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/the-trade-and-welfare-consequences-of-u-s-1248",
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  "summary": "The U.S. tax code contains two provisions that encourage exports by reducing the U.S. corporate income tax on export profits. An applied general equilibrium model of the U.S. economy is used to estimate the trade and welfare consequences of eliminating both tax provisions.",
  "sections": [
    {
      "heading": "Summary and main findings",
      "content": "- The U.S. tax code contains two provisions that encourage exports by reducing the U.S. corporate income tax on export profits.\n- An applied general equilibrium model of the U.S. economy is used to estimate the trade and welfare consequences of eliminating both tax provisions.\n- The provisions ameliorate the trade-discouraging effects of U.S. tariffs.\n- The provisions adversely affect the U.S. terms of trade to such an extent that eliminating them is likely to improve U.S. domestic welfare.\n- While it is possible to find an “equivalent” tariff rate that replicates the effects on trade flows of removing the tax provisions, the welfare effects of a tariff differ importantly because a tariff interacts differently than the tax provisions with other distortions in the model."
    },
    {
      "heading": "Methodology",
      "content": "- Approach: Applied general equilibrium model of the U.S. economy.\n- Policy experiment: Elimination of both U.S. tax provisions that reduce corporate income tax on export profits.\n- Comparative exercise: Identification of an “equivalent” tariff rate that replicates trade-flow effects of removing the tax provisions, followed by comparison of welfare outcomes."
    },
    {
      "heading": "Policy implications and interpretation",
      "content": "- Export-enhancing tax provisions can offset trade-discouraging effects of tariffs but can deteriorate terms of trade.\n- Eliminating export tax breaks may improve domestic welfare despite potential negative effects on trade flows, due to adverse terms-of-trade impacts of the provisions.\n- Tariffs and tax provisions are not welfare-equivalent even when calibrated to produce similar trade-flow outcomes because they interact differently with other distortions in the economy."
    },
    {
      "heading": "Subject coverage and keywords",
      "content": "- Subjects: Consumption, Exports, Imports, International trade, National accounts, Tariffs, Taxes, Terms of trade\n- Keywords: Consumption, demand curve, export profits, export tax breaks, Exports, Global, import tariff, Imports, Tariffs, tax provision, tax provisions, Terms of trade, traded good, WP\n\n---\n\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/the-trade-and-welfare-consequences-of-u-s-1248"
    }
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    "Authors: Stephen Tokarick, Don Rousslang",
    "Published: May 1, 1994",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451846904.001",
    "The U.S. tax code contains two provisions that encourage exports by reducing the U.S. corporate income tax on export profits.",
    "An applied general equilibrium model of the U.S. economy is used to estimate the trade and welfare consequences of eliminating both tax provisions.",
    "The provisions ameliorate the trade-discouraging effects of U.S. tariffs.",
    "The provisions adversely affect the U.S. terms of trade to such an extent that eliminating them is likely to improve U.S. domestic welfare.",
    "While it is possible to find an “equivalent” tariff rate that replicates the effects on trade flows of removing the tax provisions, the welfare effects of a tariff differ importantly because a tariff interacts differently than the tax provisions with other distortions in the model.",
    "Approach: Applied general equilibrium model of the U.S. economy.",
    "Policy experiment: Elimination of both U.S. tax provisions that reduce corporate income tax on export profits.",
    "Comparative exercise: Identification of an “equivalent” tariff rate that replicates trade-flow effects of removing the tax provisions, followed by comparison of welfare outcomes.",
    "Export-enhancing tax provisions can offset trade-discouraging effects of tariffs but can deteriorate terms of trade.",
    "Eliminating export tax breaks may improve domestic welfare despite potential negative effects on trade flows, due to adverse terms-of-trade impacts of the provisions.",
    "Tariffs and tax provisions are not welfare-equivalent even when calibrated to produce similar trade-flow outcomes because they interact differently with other distortions in the economy.",
    "Subjects: Consumption, Exports, Imports, International trade, National accounts, Tariffs, Taxes, Terms of trade",
    "Keywords: Consumption, demand curve, export profits, export tax breaks, Exports, Global, import tariff, Imports, Tariffs, tax provision, tax provisions, Terms of trade, traded good, WP"
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