Tax Policy and Trade Liberalization: An Application to Mexico
Author:
Mr. Andrew Feltenstein
Search for other papers by Mr. Andrew Feltenstein in
Current site
Google Scholar
Close
We construct a dynamic general equilibrium model of an open economy and use it to examine issues of trade liberalization in Mexico. In particular, we consider the fiscal implications of quotas and tariffs and, accordingly, their removal. We show that, in the short run, there may be negative revenue effects from tariff liberalization, so that it may be necessary to raise domestic taxes to compensate for the tariff reduction. We also show that these results are highly sensitive to behavioral shifts in exports. Since such shifts are quite likely given the nature of the trade reform currently being undertaken, it is important that we qualify our results accordingly.
  • Collapse
  • Expand
IMF Working Papers