Working Paper #2011-09 – The Impact of Taxes on Trade Competitiveness

Department of Economics
University of Delaware
Working Paper #2011-09

The Impact of Taxed on Trade Competitiveness

Stacie Beck and Alexis Chaves

ABSTRACT

Few macroeconomic studies exist on the effects of taxes on international trade. Our hypothesis is that higher tax rates raise a country’s production costs, leading to a decrease in exports in the long run. With panel data for 25 OECD countries, we use average effective tax rates on consumption, labor income and capital income to examine their impact on bilateral trade. We find that that all three types of taxes reduce the flow of international trade.

JEL Codes:H20, F10, C23

Keywords:  tax ratio, average effective tax rate, international trade