Tax Principles and Tariff-Tax Reforms

This paper develops a two-country general equilibrium model to examine the welfare effect of tariff-tax reforms that fix the world price. We show that this reform improves welfare if an origin tax is adjusted, but that it reduces welfare if a destination tax is used. Moreover, this result is reversed in the export tax case. In short, whether the proposed policy reform improves welfare depends on which between imports and exports are taxed as well as tax principles.