Munich Personal RePEc Archive

Traded Goods, Tax and Intermediation - the Role of Corrupt Nontraded Sector

Mandal, Biswajit (2014): Traded Goods, Tax and Intermediation - the Role of Corrupt Nontraded Sector.

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Abstract

This paper uses a Heckscher-Ohlin nugget framework with both traded and non-traded goods. Our motive is to investigate the effects of corruption and tax cut. We assume only the non-traded sector to be corruption affected. We argue that a fall in the degree of corruption surprisingly increases number of intermediators while tax change has no effect on it. But the size of the intermediation activities expands in both the cases. Low corruption diminishes the exportable production and raises importable production while a tax cut does not have any effect. The welfare implication is ambiguous in case of a decrease in cost of corruption. A tax cut, however, raises the welfare unambiguously.

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