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The optimal export tax for a primary commodity in a vertical market
Author(s) -
Lin Ying,
Kinnucan Henry W.
Publication year - 2020
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/agec.12600
Subject(s) - economics , commodity , deadweight loss , welfare , partial equilibrium , downstream (manufacturing) , market power , general equilibrium theory , microeconomics , ad valorem tax , monetary economics , tax reform , public economics , market economy , monopoly , operations management
The conventional formula for the optimal export tax (derived from a partial equilibrium model that ignores importers’ welfare) is extended to include the deadweight loss to the domestic economy associated with the tax. Applying the extended formula to the tax Russia imposes on its exports of logs, results suggest ignoring the marketing channel causes the optimal export tax for a primary commodity to be understated. The degree of understatement increases as the supply of logs and processing/marketing inputs become less price elastic, and as buyer and seller power in the downstream (lumber) industry increases. For plausible values of model parameters, however, the degree of understatement is modest, less than 19%.