GTAP Resources: Resource Display
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"Tax-tariff reform with costs of tax administration*" by Munk, Knud Abstract As is broadly recognized, the straightforward application of the Diamond-Mirrlees (1971) production efficiency theorem implies that when lump-sum taxation is not available, then it is optimal for the government in a small open economy to rely on taxes on the net demand of households rather than on border taxes to finance its resource requirements. However, the theorem does not hold when taxation is associated with administrative costs. The present paper explores the implications for optimal taxation and for desirable directions of tax-tariff reform in countries at different levels of economic development taking into account the costs of tax administration. The paper lends support to and clarifies the reasons for the criticism by Emran and Stiglitz (2003, 2005) of the IMF and the World Banks recommendation to developing countries to adopt VAT to replace border taxes. Keywords: Optimal taxation, optimal trade policy, VAT, tax-tariff reform, costs of tax administration, informal sector, developing countries JEL classification codes: F11, F13, H21 |
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Public Access  2006 Conference Paper (160.7 KB) Replicated: 0 time(s)Restricted Access No documents have been attached. Special Instructions Paper forthcomming in International Tax and Public Finance |
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Last Modified: 9/15/2023 2:05:45 PM
