Abstract
Some economists use an export tax, which alters the domestic relative price of exports, to model a voluntary export restraint, which is a restriction on the quantity of exports with restriction-induced rents accruing to the exporting country. Implicit in this approach is the presumption that the two policies are equivalent. In a very general model that allows for a finite number of goods and factors and intermediated goods and joint production, we demonstrate that, in general, this is, in fact, not the case. Specifically, from the exporting country’s perspective, the real income effects of the two policies are nonequivalent.
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Notes
State Trading Enterprises (STEs) are one such example of a trade distorting policy. McCorriston and MacLaren (2007) posit that STEs may be equivalent to an export subsidy or export tax depending on their implementation.
See Neary (1988), among others.
See Brecher and Bhagwati (1987).
For further details, see Neary (1995), among others.
In fact the model is the same as in Neary (1988).
Prices of other commodities are also arguments of both the GDP and the expenditure functions, but they are not made explicit simply because in the entire analysis they do not change.
In general, the GDP function is defined for a very general production structure of an economy. It admits of a finite number of goods and factors of production, intermediate goods and joint production. While external increasing returns to scale can also be accommodated, here we restrict the analysis to linearly homogenous technology in all activities. Also, to preserve the strict concavity of the production hyper-surface, we also assume that the number of factors is at least as great as the number of final goods produced in the economy. In particular, \( g(p,v) = \frac{{Max}}{x}\left\{ {p.x:F(x,v) \leqslant 0} \right\} \), where F(x,v) ≤ 0 defines a convex production set, v, is the vector of factor endowments, and all productive activities are subject to constant returns to scale technology. In the text of the paper we suppress v simply because we do not consider any changes in factor endowments in our analysis.
One should note that there are significant issues in interpreting dy and dY, the change in real national income measured in terms of a numeraire good, as a measure of the social welfare of a country. Exacting conditions, as in Sen (1976, 1977, 1979), must be imposed for an increase in real national income to represent an improvement of the collective realized well-being of all persons in a society.
References
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Franck, D., Naqvi, N. Will export taxes replace VERs?. J Econ Finan 35, 484–489 (2011). https://doi.org/10.1007/s12197-010-9168-1
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DOI: https://doi.org/10.1007/s12197-010-9168-1