Abstract
It is well known that when tariff revenue is distributed to consumers as a lump sum, the optimum policy for a small country is free trade because a tariff reduces its welfare. Many less-developed countries, however, use tariff revenue to finance the provision of public goods or public inputs, such as technical training or infrastruc ture. This article builds a small open economy model with three private goods—one imported, one exported, and one nontraded—and where the government uses tariff revenue to finance the provision of a public good or input. Within this framework, the article derives the optimum tariff formulas and efficiency rules for public good and public input provision and compares the latter with the efficiency rules when the provision of public goods is financed with consumption taxes.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.