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Review of Economics

Jahrbuch für Wirtschaftswissenschaften

Editor-in-Chief: Berlemann, Michael

Ed. by Haucap, Justus / Thum, Marcel

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2366-035X
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Tax on Traded Goods, and Corrupt Non-traded Goods Sector: Implications for Intermediation Activities

Biswajit Mandal
  • Corresponding author
  • Department of Economics & Politics, Visva-Bharati University, Santiniketan, West Bengal 731235, India
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Published Online: 2017-12-12 | DOI: https://doi.org/10.1515/roe-2017-0015

Abstract

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.

Keywords: international trade; corruption; general equilibrium; welfare

JEL Classification: F1; D73; D5; D6

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About the article

Published Online: 2017-12-12

Published in Print: 2018-03-26


Citation Information: Review of Economics, Volume 69, Issue 1, Pages 27–41, ISSN (Online) 2366-035X, ISSN (Print) 0948-5139, DOI: https://doi.org/10.1515/roe-2017-0015.

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