How much should primary commodity exports be taxed? Nash and Stackelberg equilibria in the Global Cocoa Market

Abstract

This paper extends the partial (PE) and general equilibrium (GE) analyses of Nash and Stackelberg optimum export taxes to a multicountry framework, using a computable general equilibrium (CGE) model of the global cocoa market. There are several results to report. First, depending on the leader's market share and cocoa supply elasticity, a Stackelberg optimum tax rate is either higher than or equal to the Nash optimum tax rate. Second, undertaking a PE analysis of those countries with characteristics that require a GE approach leads to the overestimation of the followers' optimum export taxes. However, the consequences for the leaders' optimum tax rates are not certain. For countries with elastic supply Stackelberg leader optimum tax rates are higher in the PE than in the GE framework. The reverse is true for countries with inelastic supply. Finally, we show that the symmetric equilibrium result, that a country is better off under another country's leadership than its own, is not necessarily carried over to an asymmetric setting.