Growth, revenue, and welfare effects of tariff and tax reform: Win-win-win strategies

We examine growth, revenue, and welfare effects of tariff and tax reform with a two-good, two-factor endogenous growth model. Learning-by-doing and intersectoral knowledge spillovers contribute to endogenous growth consistent with incomplete specialization. We obtain two main results. First, trade liberalization raises (or lowers) the growth rate if and only if the import sector is more effective-labor-intensive (or capital-intensive). Second, we can attain growth, revenue, and welfare gains by combining consumer-price-neutral tariff and tax reform for growth enhancement with an additional rise in the consumption tax on the less distorted good. (c) 2005 Elsevier B.V. All rights reserved.