Distortionary Domestic Taxation and Pareto-Efficient International Trade

35 Pages Posted: 30 Jan 2002

See all articles by Jeremy Edwards

Jeremy Edwards

University of Cambridge - Faculty of Economics and Politics; CESifo (Center for Economic Studies and Ifo Institute)

Ronnie Schöb

Freie Universitaet Berlin; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: January 2002

Abstract

This paper characterises the domestic tax systems which yield Pareto-efficient outcomes for a two-country world economy in which each country uses distortionary taxes. Such outcomes are compared with the Nash equilibria of the world economy when each country uses its domestic tax system to influence its terms of trade. In such circumstances, the implementation of domestic tax systems which achieve a globally Pareto-efficient outcome as a Nash equilibrium will be very difficult, for two main reasons: the ability of countries to use tax policy with respect to non-traded goods for protection, and the fact that Pareto-efficient tax structures depend on countries' distributional judgements, which are hard to measure objectively.

JEL Classification: F13, H21

Suggested Citation

Edwards, Jeremy and Schöb, Ronnie, Distortionary Domestic Taxation and Pareto-Efficient International Trade (January 2002). CESifo Working Paper Series No. 635. Available at SSRN: https://ssrn.com/abstract=298029

Jeremy Edwards (Contact Author)

University of Cambridge - Faculty of Economics and Politics ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Ronnie Schöb

Freie Universitaet Berlin ( email )

Boltzmannstraße 20
Berlin, Berlin 14195
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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