The role of export taxes in the field of primary commodities
Answers
Export taxes can take different forms. It can be an
ad valorem tax, specified as a percentage tax of the
value of the product; or a specific tax, specified as
a fixed amount to pay per unit of a product. It can
be a progressive tax, i.e. characterised by a high tax
rate when the price of the product is high and a
lower tax rate when the value of the product is low.
All types of export taxes have the effect of
reducing the volume of exports and are therefore a
form of export restriction.
Export bans have frequently been applied on live
fishery products, wildlife, hides and skins of
certain endangered species, or to prevent exports
of dangerous materials. However, Indonesia, for
example, banned exports of palm oil and cooking
oil in December 1997 in an attempt to control
domestic prices in the aftermath of a huge
depreciation of the rupiah. Two fundamental
problems are related to the use of this policy: it is
not a long-term credible policy (the effectiveness of
an export ban is seriously curtailed by the
anticipation of the ending of the ban) and it often
leads to smuggling (Marks et al., 1998).
Regulated exports include quotas and licensing
requirements. Quotas define a maximum volume of
exports, while licensing requirements establish that
a commodity can be exported only through
approved exporters. The trade regime in this case
is designed in such a way that the government
allocates export quotas to some registered
exporters. This system is sometimes adopted to
capture economic rents associated with a perceived
position of market power in an exporting country.
However, it introduces a strong discretionary
element in the trading system through quota
allocation arrangements and may encourage the
formation of powerful export cartels and, in
general, rent-seeking activities.
Supervised exports is a mixed form of control used
for some commodities to ensure an adequate
domestic supply of "essential goods" at a
reasonable price.
It is generally argued that export taxes are the
preferred instrument among the various policy
options to restrict exports. Taxes are a credible
policy, yielding the government some revenue
while being transparent and simple to administer.
The rest of the paper focuses on export taxes.
However, some of the economic implications of
using the other instruments mentioned above can
still be drawn from this analysis.
B. OVERALL WELFARE EFFECTS FOR THE
EXPORTING COUNTRY, THE IMPORTING
COUNTRY AND THE WORLD
Suppose that a country imposing an export tax is a
"large" country, in the sense that it controls a large
share of the world supply of the taxed good. A
large country has market power in the world
market. Consequently, variations in its volume of
exports will affect the world price. A large country
is a price setter. Therefore, as it reduces its
exports, the international price of the good will rise.
A ban or a tax on exports implemented by a large
country depresses the domestic price of the taxed
commodity, increases the international price and
reduces the volume of trade. Suppose, for
simplicity, that the EU, say, is a large exporter of
sugar, so that it possesses a certain monopolistic
power in setting the sugar price. Suppose that the
EU imposes a tax on exports of sugar. It will now
be more expensive for EU exporters to trade sugar.
Therefore, the supply of sugar in the international
market will fall. As a result, the world price of
sugar will increase. Since the EU is a large country
in the sugar market, the price of sugar both
produced in the rest of the world (ROW) and
imported from the EU will increase. The higher
price will reduce the demand for sugar from ROW.
Reduced EU exports to the ROW will shift the EU
supply of sugar onto the EU market, where the
domestic price of sugar will fall. Since EU
suppliers of sugar must receive the same price for
their product at home and abroad, the price
differential across countries will equal the tax.
What are the welfare implications of an export tax
for the importing and the exporting country? A
useful way of interpreting the effects of an export
tax on welfare is in terms of efficiency and termsof-trade effects.
plz mark it as the brainliest !!!!!!!!!!!!!!!!!!!!!!!!