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Abstract
This paper investigates the macroeconomic effects of service sector reform policies using two computable general equilibrium models of Sri Lankan economy. The first model assumes a perfectly competitive market economy and second one assumes a monopoly supplier market economy. Both models have been calibrated using Sri Lanka's social accounting matrix currently available. Impacts of both service sector production tax reduction and import tariff increase have been simulated. Simulation results imply that reduction of service sector production tax is more productive and socially efficient than the increase of import tariff in both perfectly competitive market and monopoly supplier market economy. Reduction of service sector production tax seems to improve not only the service sector output but also the social welfare.
Highlights
Transformation to service sector is one of the important aspects of economic policies in the developed countries and in developing countries
This paper examined the impacts of production tax and import tariff reform policies in the Sri Lankan service sector on a general equilibrium framework
Policy simulation results imply that reduction of service sector production tax increases the output of the service sector in both perfectly competitive market economy and the monopoly supplier market economy
Summary
Transformation to service sector is one of the important aspects of economic policies in the developed countries and in developing countries. In high-income countries, on average, service sector constitute nearly two thirds of total gross domestic product (GDP). Among low and middle-income countries, they account for a smaller share of 54 percent but still the majority of the output. In East Asia, the service sector on average is about the same size as the industrial sector, at 41 percent of GDP. In Sri Lanka 59.3 percent of total GDP is contributed by service sector A. WAYAMBA JOURNAL OF MANAGEMENT 3 (2)
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