DOI:

Abstract

Using the Dynamic Computable General Equilibrium (DCGE) framework, this study examines and compares the impacts of tariff reduction in association with government tax policy alternatives for satisfying a fixed budget income target. It is found that the effects of trade liberalization on the welfare of each household group depend strongly on the government polices dealing with deficit caused by tariff reduction. Replacing tariff with direct taxes seems to be more desirable than indirect taxes, though it will cause a considerable increase in foreign debt, and the highest improvement of the total national welfare may be obtained if the government can cut expenditure or find some sources of finance without increasing other taxes.

Keywords

Dynamic Computable General Equilibrium; Income Distribution; Tax Policies.