The Impact of Tax Regimes on International Trade Patterns

16 Pages Posted: 24 Aug 2013

See all articles by Michael W. Nicholson

Michael W. Nicholson

US Agency for International Development

Date Written: October 2013


This paper discusses the trade implications of value‐added taxes (VATs) that refund domestic taxes paid by exporters of domestic production while imposing taxes on imports of foreign production. VATs are used by over 140 countries of the world, including every member of the Organisation for Economic Cooperation and Development except the United States. An investigation of the implications of border‐adjustable taxes on the U.S. trade balance suggests that VATs positively affect trade competitiveness but with differing impacts by sector. These results do not necessarily extend to the conclusion that a U.S. VAT would increase U.S. exports; such a prediction requires economic forecasting and appropriate simulations. The present results do imply that the adoption of VATs by other countries appears to have benefited U.S. trade. Panel data over 20 years, 29 industries, and 145 countries is used to conduct the analysis.

JEL Classification: F10, H20, K34

Suggested Citation

Nicholson, Michael W., The Impact of Tax Regimes on International Trade Patterns (October 2013). Contemporary Economic Policy, Vol. 31, Issue 4, pp. 746-761, 2013, Available at SSRN: or

Michael W. Nicholson (Contact Author)

US Agency for International Development ( email )

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Washington, DC 20577
United States

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