RE: Re: Re: RE: Export tax subsidies that aren't?
In a world in which transaction demand on the current account was the sole basis for forex markets, with constant PPP and never a whiff of pricing to market, then this type of analysis would make sense. We're not in that world, however. Peter AND . . . . ??? mbs
Re: Export tax subsidies that aren't?
Well, we have theories of speculative dynamics in asset markets, and we have case studies in policy outcomes for countries facing BOP/forex issues, and there are Thirwall's Post Keynesian Lance Taylor's structuralist approaches. Am I missing anything? The main point, though, is that there is a defensible notion of competitiveness on a national level, and that cost-changing measures (subsidizing exports, assassinating union leaders) are not simply offset by exchange rates; they have impacts on aggregate flows. Peter Max Sawicky wrote: In a world in which transaction demand on the current account was the sole basis for forex markets, with constant PPP and never a whiff of pricing to market, then this type of analysis would make sense. We're not in that world, however. Peter AND . . . . ??? mbs
Re: RE: Export tax subsidies that aren't?
On Wed, 30 Jan 2002, Max Sawicky wrote: The mainstream argument is that exchange rates adjust to wash away all tax advantages, whether legal or illegal. Not being a trade person, the best argument I can think of goes like this: If you want to buy US goods, you need dollars to pay for them. A cost reduction in said goods [due to tax rebates for exports] increases demand for dollars relative to other currencies, Wouldn't a decrease in the total cost of goods lead to a *decrease* in the demand for dollars? In which case, the rest of the mechanism: cost of dollar (and good, in importer's currency) go up, cost advantage disappears. would be thrown into reverse, and the currency swings would reinforce the effect of the original subsidy. Michael __ Michael PollakNew York [EMAIL PROTECTED]
RE: Re: RE: Export tax subsidies that aren't?
Depends on the price elasticity. If the price of jellybeans goes down, do you spend more or less on jellybeans? But I should beg off on this. I don't do trade. --mbs Wouldn't a decrease in the total cost of goods lead to a *decrease* in the demand for dollars? In which case, the rest of the mechanism: cost of dollar (and good, in importer's currency) go up, cost advantage disappears. would be thrown into reverse, and the currency swings would reinforce the effect of the original subsidy. Michael __ Michael PollakNew York [EMAIL PROTECTED]
Re: Re: RE: Export tax subsidies that aren't?
In a world in which transaction demand on the current account was the sole basis for forex markets, with constant PPP and never a whiff of pricing to market, then this type of analysis would make sense. We're not in that world, however. Peter Michael Pollak wrote: On Wed, 30 Jan 2002, Max Sawicky wrote: The mainstream argument is that exchange rates adjust to wash away all tax advantages, whether legal or illegal. Not being a trade person, the best argument I can think of goes like this: If you want to buy US goods, you need dollars to pay for them. A cost reduction in said goods [due to tax rebates for exports] increases demand for dollars relative to other currencies, Wouldn't a decrease in the total cost of goods lead to a *decrease* in the demand for dollars? In which case, the rest of the mechanism: cost of dollar (and good, in importer's currency) go up, cost advantage disappears. would be thrown into reverse, and the currency swings would reinforce the effect of the original subsidy. Michael __ Michael PollakNew York [EMAIL PROTECTED]
Re: RE: Re: RE: Export tax subsidies that aren't?
Max, this is governed by the, ahem, Marshall-Lerner conditions: the sum of import and export price elasticities must be greater than one. People who study such things say the conditions are always met, but the structuralist tradition holds that they are met only within limits. This is something I've always wanted to look at but never got around to. Peter Max Sawicky wrote: Depends on the price elasticity. If the price of jellybeans goes down, do you spend more or less on jellybeans? But I should beg off on this. I don't do trade. --mbs Wouldn't a decrease in the total cost of goods lead to a *decrease* in the demand for dollars? In which case, the rest of the mechanism: cost of dollar (and good, in importer's currency) go up, cost advantage disappears. would be thrown into reverse, and the currency swings would reinforce the effect of the original subsidy. Michael __ Michael PollakNew York [EMAIL PROTECTED]
RE: Export tax subsidies that aren't?
The mainstream argument is that exchange rates adjust to wash away all tax advantages, whether legal or illegal. Not being a trade person, the best argument I can think of goes like this: If you want to buy US goods, you need dollars to pay for them. A cost reduction in said goods increases demand for dollars relative to other currencies, cost of dollar (and good, in importer's currency) go up, cost advantage disappears. I'm not familiar with the Grossman paper. If you have less faith in the flexibility of the price system, you would favor the position that cost savings improve U.S. competitiveness, so there are indeed tax subsidies, relative to tax systems with no special concessions for exports. In the latter sense, the VAT and the CIT both subsidize exports. The U.S. problem is that the latter is GATT illegal, and now thanks to the WTO, the U.S. faces the prospect of actually facing up to the dictum that crime doesn't pay. The fun part comes when the free trade maniacs in Congress are confronted with a breach of U.S. sovereignty (something they claimed couldn't happen), in the form of instructions from commie-pinko Europeans to change our red-white-and-blue tax system. It's kind of sweet. max Jagdish Bhagwati has an op-ed in yesterday's FT where he says the US Congress's objections to that huge WTO ruling last month that declared we are unfairly subsidizing our exports to the tune of $4 billion are hypocritical, nationalistic and wrong. No argument from me there. But he makes one argument I can't follow:
