On the Rationality of "Cascaded" Export Subsidies and Taxes

Abstract

In their efforts to encourage the export of manufactures, many less developed countries have introduced "cascaded" tax-subsidy schemes, whereby the export subsidy is higher (or export tax lower) the more highly processed is the exported product. While such cascading has been loosely defended on a variety of grounds--such as the encouragement of industrialization or of increased domestic content in exports--its only rigorous rationale has derived from the perceived existence of monopoly power in the sale of primary goods.