Tariffs, Optimal Taxes, and Collection Costs
Summary:
This paper studies an optimal tax problem for a small open economy where collecting taxes is costly. It is shown that, in the presence of collection costs modeled as an increasing function of the tax rate: (a) the standard rules of optimal commodity taxation (the Ramsey, the inverse elasticity, the Corlett-Hague rules) may no longer be valid; (b) tariffs may replace domestic taxes as a second-best revenue-raising device; and (c) the optimal tariff/tax structure may be uniform rather than differentiated.
Series:
Working Paper No. 1992/028
Subject:
Consumption taxes Demand elasticity Economic theory Optimal taxation Tariffs Tax policy Taxes Taxes on trade
English
Publication Date:
April 1, 1992
ISBN/ISSN:
9781451844573/1018-5941
Stock No:
WPIEA0281992
Pages:
34
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