Border tax adjustments. Do they distort trade?

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A familiar proposition asserting the trade-neutrality of uniform, indirect taxes under both the origin and destination principles is re-examined in the context of a world with trade in intermediate goods. A uniform, general sales tax is shown to be trade-neutral under the destination principle, but trade-distorting under the origin principle. A 'stage of processing' value added tax is nondistorting under either border tax adjustment principle. The discussion is then related to a proposed change in GATT rules that would require origin principle administration of the European value added tax.

Original languageEnglish (US)
Pages (from-to)117-128
Number of pages12
JournalJournal of International Economics
Issue number1
StatePublished - Feb 1980
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics


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