Optimal export taxes with an endogenous location.

Summary

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Developing countries with strong natural advantages in the production of primary commodities have at times become major suppliers in the international market. They have usually employed export taxes on those commodities to acquire foreign exchange and/or government tax revenues. A normative examination was used to investigate how the inclusion of economic space influences export tax policy and to compare optimal export taxes under endogenous location with optimal export taxes under exogenous location, both in the short term and in the long term.

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Optimal export taxes with an endogenous location.

1. Introduction

Export tax policy is one of the most debated issues in many developing countries. Those countries that have strong natural advantages in the production of primary commodities (such as agricultural and livestock products, coffee, jute, rubber, and others) have attained at particular times a position as dominant suppliers in international trade. They have often used export taxes on those commodities to obtain foreign exchange and/or government tax revenues (Renaud and Suphaphiphat 1971; Repetto 1972; Gomez-Sabaini 1990). For example, Gomez-Sabaini (1990) provided a detailed analysis of the reasons for the evolution of export taxes in the case of Argentina during the 1932-1987 period and pointed out that, in 1985, the share of export taxes in GDP rose to 1.85%, representing almost 64% of the revenue from foreign trade. Left (1969) followed an exportable surplus approach to develop the notion that export taxes have been used (such as in Brazil) for internal income distribution reasons. Renaud and Suphaphiphat (1971) used a simple econometric analysis to determine the magnitude of the increases in the domestic rice price and paddy price for separate types of rice and paddy as a consequence of the reduction or abolition of the rice export tax.(1) These analyses relied on a setting of either perfect competition or monopoly with constant returns to scale.

Recent papers on trade policy with increasing returns and imperfect competition have attracted attention because of their relevance to the new protectionism. Some articles going in this direction include Spencer and (1983), Brander and Spencer (1984a, b, 1985), Dixit (1984), Venables (1985), De Meza (1986), Eaton and Grossman (1986), Mai and Hwang (1987), Hwang and Mai (1988, 1991), Rodrik (1989), and others. Eaton and Grossm...

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