Dollarization, Globalization and Financial Crises

Research and Event Summaries

Project Abstract

One of the few undisputed propositions in the economics profession is that free trade allows an economy to achieve the highest possible welfare gains. Even in a world where non-economic incentives drive government policy, tariffs and export taxes are considered to be bad policies because they distort production as well as consumption decisions. Despite these theoretically correct results, in reality, there are virtually no countries that practice free trade. This is a major issue for LDCs and NICs who are struggling with the pressure to reduce and eliminate border taxes.

Revenues from international trade taxes are typically not large for developed countries, but they are substantial for developing economies. The tax system is an evolutionary component of economic development, where tariffs are a part of an optimal tax policy in early stages switching as the cost of collection declines. Corruption and evasion also make tax collection difficult, and enforcement costs provide a rationale for using narrow-based taxes such as tariffs.

This study seeks to pull together the current state of knowledge and contribute to our understanding on link between trade liberalization, tax reforms and the location of firms. One of the recent economies that has been a primary example of this transition in tax structures is Israel. By doing both a cross country econometric study and a single case study we will be able to get both partial and general equilibrium results to apply for further research support for case studies in Egypt, Morocco, Bolivia and Jamaica, all examples of this shift in tax structures.

Faculty

Graciela Kaminsky, Professor of Economics
Marco Cipriani, Assistant Professor of Economics and International Affairs

The GW Center for the Study of Globalization
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