Optimal Indirect Tax Design in an Open Economy

Download or read book Optimal Indirect Tax Design in an Open Economy written by Y. Ogawa and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The article analyses the optimal indirect tax, consisting of commodity taxes and tariffs, under a revenue constraint. The study shows that the optimal commodity tax structure follows the Ramsey rule regardless of whether a country is small or large, which implies that the same optimal commodity tax rules are applied across a range of situations. It shows that the optimal tariffs are not zero, but negative, even in the small country case, which implies stronger support for the World Bank's recommendation of tariff reductions for a country facing a revenue constraint. In addition, this study analyses the optimal commodity taxation when tariffs cannot be fully adjusted. Numerical examples demonstrate some of the authors' major findings and the magnitude of the welfare gains by these optimizations for a few countries.