On the Determinants of Optimal Border Taxes for a Small Open Economy

Aarhus University Economics Paper No. 2005-22

14 Pages Posted: 19 Jun 2008

See all articles by Knud J. Munk

Knud J. Munk

affiliation not provided to SSRN

Bo Sandemann Rasmussen

Aarhus University - Department of Economics and Business Economics

Date Written: December 15, 2005

Abstract

For a small open economy where the government is restricted to raise revenue using border taxes only, the optimal structure of border taxes is considered. As a matter of normalization exports and the supply to the market of the primary factor may be assumed to be untaxed, but that the household use of the primary factor and domestic consumption of the export good cannot be taxed is nevertheless a constraint; this insight provides the key to understanding what determines the optimal tariff structure. The optimal border tax structure is derived for both exogenous and endogenous labour supply, and the results are interpreted in the spirit of the Corlett-Hague results for the optimal tax structure in a closed economy and compared with results from CGE models.

Keywords: Border taxes, small open economy, labour supply, Corlett-Hague

JEL Classification: H21, F13

Suggested Citation

Munk, Knud Jørgen and Rasmussen, Bo Sandemann, On the Determinants of Optimal Border Taxes for a Small Open Economy (December 15, 2005). Aarhus University Economics Paper No. 2005-22, Available at SSRN: https://ssrn.com/abstract=1147618 or http://dx.doi.org/10.2139/ssrn.1147618

Knud Jørgen Munk (Contact Author)

affiliation not provided to SSRN

Bo Sandemann Rasmussen

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V
Denmark
+45 8942 1133 (Phone)
+45 8613 6334 (Fax)

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