Skip to content
Licensed Unlicensed Requires Authentication Published by De Gruyter Oldenbourg December 12, 2017

Tax on Traded Goods, and Corrupt Non-traded Goods Sector: Implications for Intermediation Activities

  • Biswajit Mandal EMAIL logo
From the journal Review of Economics


This paper uses a Heckscher-Ohlin nugget framework with both traded and non-traded goods. Traded goods are subject to tax whereas non-traded good does not pay tax but is beset with corruption related intermediation. Our motive is to investigate the comparison of the effects of corruption and tax cut. We assume only the non-traded sector to be corruption affected. We argue that a fall in the degree of corruption surprisingly increases the number of intermediators while tax change has no effect on it. But the size of the intermediation activities expands in both the cases. Low corruption diminishes the exportable production and raises importable production while a tax cut does not have any such effect. The welfare implication is ambiguous in case of a decrease in cost of corruption. A tax cut, however, raises welfare unambiguously.

JEL Classification: F1; D73; D5; D6


Beladi, H. and C. Chao (1993): Non-Traded Goods, Urban Unemployment and Welfare in LDCs, European Journal of Political Economy 9(2), 281–292.10.1016/0176-2680(93)90023-NSearch in Google Scholar

Beladi, H. and S. Yabuuchi (2001): Traiff Induced Capital Inflow and Welfare in the Presence of Unemployment and Informal Sector, Japan and the World Economy 13(1), 51–60.10.1016/S0922-1425(00)00062-1Search in Google Scholar

Bhagwati, J. (1982): Directly Unproductive Profit Seeking (DUP) Activities, Journal of Political Economy 90(5), 988–1002.10.1086/261104Search in Google Scholar

Brecher, R. and C. D. Alejandro (1977): Traiff, Foreign Capital and Immiserising Growth, Journal of International Economics 7(4), 317–322.10.1016/0022-1996(77)90048-4Search in Google Scholar

Findlay, R. and R. W. Jones (2000): Factor Bias and Technical Progress, Economics Letters 68(3), 303–308.10.1016/S0165-1765(99)00194-9Search in Google Scholar

Gruen, F. and M. Corden (1970): A Tariff that Worsens Terms of Trade, in: I. A. McDougall and R. H. Snapes (eds.) Studies in International Economics, North-Holland, Amsterdam.Search in Google Scholar

Jones, R. W. (1965): The Structure of Simple General Equilibrium Models, Journal of Political Economy 73, 557–572.10.1086/259084Search in Google Scholar

Jones, R. W. (1971): A Three-Factor Model in Theory, Trade and History, in: J. Bhagwati et al (eds.) Trade, Balance of Payments and Growth. North-Holland, Amsterdam, 3–21.Search in Google Scholar

Jones, R. W. and S. Marjit (1992): International Trade and Endogenous Production Structure, in: W. Neuefeind and R. G. Riezman (eds.) Economic Theory and International Trade: Essays in Honour of J. Trout Rader, Sringer Verlag, Berlin.10.1007/978-3-642-77671-7_9Search in Google Scholar

Jones, R. W. and S. Marjit (2009): Competitive Trade Models and Real World Features, Economic Theory 41(1), 163–174.10.1007/s00199-008-0394-0Search in Google Scholar

Kar, S. and S. Marjit (2001): Informal Sector in General Equilibrium: Welfare Effects of Trade Policy Reforms, International Review of Economics and Finance 10(3), 289–300.10.1016/S1059-0560(01)00088-0Search in Google Scholar

Mandal, B. and S. Marjit (2010): Corruption and Wage Inequality?, International Review of Economics and Finance 19(1), 166–172.10.1016/j.iref.2009.01.001Search in Google Scholar

Mandal, B. and S. Marjit (2012): Capital Inflow, Vanishing Sector and Wage Distribution in an Economy with Corruption Related Intermediation, Economics Bulletin 32(3), 2128–2135.Search in Google Scholar

Mandal, B. and S. Marjit (2013): Trade Reform, Intermediation and Corruption, Economic Modelling 33, 741–746.10.1016/j.econmod.2013.05.022Search in Google Scholar

Mandal, B., S. Marjit and H. Beladi (2017): Reform, Informal Sector and Extortion, Economics & Politics. doi: 10.1111/ecpo.12099.10.1111/ecpo.12099Search in Google Scholar

Marjit, S. (2003): Economic Reform and Informal Wage: A General Equilibrium Analysis, Journal of Development Economics 72(1), 371–378.10.1016/S0304-3878(03)00082-8Search in Google Scholar

Marjit, S. (2005): Complementarity and International Trade: On Some Recent Development in Structural General Equilibrium Models, in: S. Lahiri and P. Maiti (eds.) Economic Theory in a Changing World: Policy Making for Growth, OUP, New Delhi.Search in Google Scholar

Marjit, S. (2008): International Trade and Economic Development: Essays in Theory and Policy. OUP, New Delhi.Search in Google Scholar

Marjit, S. and S. Kar (2011): The Outsiders: Economic Reform and Informal Labor in a Developing Economy. OUP, New Delhi.10.1093/acprof:oso/9780198071495.001.0001Search in Google Scholar

Marjit, S. and B. Mandal (2012): Domestic Trading Cost and Pure Theory of International Trade, International Journal of Economic Theory 8(2), 165–178.10.1111/j.1742-7363.2012.00184.xSearch in Google Scholar

Published Online: 2017-12-12
Published in Print: 2018-3-26

© 2018 Oldenbourg Wissenschaftsverlag GmbH, Published by De Gruyter Oldenbourg, Berlin/Boston

Downloaded on 28.2.2024 from
Scroll to top button