DP5889 Tariff-Tax Reforms and Market Access

Author(s): Udo Kreickemeier, Pascalis Raimondos
Publication Date: October 2006
Keyword(s): consumption tax reform, market access, tariff reform
JEL(s): F13, H20
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5889

Reducing tariffs and increasing consumption taxes is a standard IMF advice to countries that want to open up their economy without hurting government finances. Indeed, theoretical analysis of such a tariff-tax reform shows an unambiguous increase in welfare and government revenues. The present paper examines whether the country that implements such a reform ends up opening up its markets to international trade, i.e. whether its market access improves. It is shown that this is not necessarily so. We also show that, comparing to the reform of only tariffs, the tariff-tax reform is a less efficient proposal to follow both as far as it concerns market access and welfare.