Measurement of Welfare Gains and Losses Arising from Tax Restrictions on Trade Foreign Investment

Abstract

In this paper welfare measures are derived to represent the welfare gains and losses which result from tax restrictions on trade and foreign investment in a small country that produces n commodities and uses m factors. Analytical and graphical measures are first derived under the assumption that the stock of foreign owned factor is given. Similar measures are then obtained assuming that foreign investment is endogeneously determined. Finally, measures are derived to evaluate the benefits associated to tariffs and investment taxes when used as second best policy instruments.