Chapter

The Four Assumptions of the Theory of Domestic Divergences

W. Max Corden

in Trade Policy and Economic Welfare

Second edition

Published in print February 1997 | ISBN: 9780198775348
Published online November 2003 | e-ISBN: 9780191715471 | DOI: http://dx.doi.org/10.1093/0198775342.003.0003
 The Four Assumptions of the Theory of Domestic Divergences

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Reviews the four assumptions of the simple theory of domestic divergences (distortions), namely that subsidies can be financed by non‐distorting taxes, that taxation involves no collection costs, that there are no costs of subsidy disbursement costs, and that income distribution effects of various policies can be neglected. It is found that the central arguments of the simple theory stand when these assumptions are removed.

Keywords: collection costs; domestic distortions; income distribution; subsidies; taxation

Chapter.  5654 words. 

Subjects: International Economics

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