Economy, asked by dondee6551, 1 year ago

The role of export taxes in the field of primary commodities

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Answered by rangeremoboyofficial
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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.

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