IMF Working Papers

The Trade and Welfare Consequences of U.S. Export-Enhancing Tax Provisions

Author/Editor:

Stephen Tokarick ; Don Rousslang

Publication Date:

May 1, 1994

Summary:

The U.S. tax code contains two provisions that encourage exports by reducing the U.S. corporate income tax on export profits. An applied general equilibrium model of the U.S. economy is used to estimate the trade and welfare consequences of eliminating both tax provisions. We find that the provisions ameliorate the trade-discouraging effects of U.S. tariffs, but they also adversely affect the U.S. terms of trade to such an extent that eliminating them is likely to improve U.S. domestic welfare. While it is possible to find a “equivalent” tariff rate that replicates the effects on trade flows of removing the tax provisions, the welfare effects of a tariff differ importantly because a tariff interacts differently than the tax provisions with other distortions in the model.

Series:

Working Paper No. 1994/050

Subject:

Consumption Exports Imports International trade National accounts Tariffs Taxes Terms of trade

Notes:

Also published in Staff Papers, Vol. 41, No. 4, December 1994.