Lochindaratn, Pachara
(2009)
Essays on preferential trade liberalisation and domestic tax policy: CGE evaluations for Thailand and for India.
PhD thesis, University of Nottingham.
Abstract
This thesis employs the CGE approach to appraise three distinctive issues. Using hypothetical data, Essay 1 estimates how customs union outcomes are sensitive to market size and competitiveness. Further, common external tariffs are adjusted to ensure necessarily welfare-improving outcomes, thereby completely eliminating trade diversion. The results confirm that members’ gains are proportional to the union size, and the degree of market competition significantly alters the welfare outcome. Once common external tariffs are endogenised, members gain less while the whole world gains more as non-members become unaffected by trade diversion.
Essay 2 assesses the FTAs Thailand has reached with Japan, China, India, Australia and New Zealand. The model constructed in Essay 1 is extended to accommodate the GTAP 6.0 database. It explicitly determines commodity market competition by sector and labour market paradigm by skill level to better reflect economic reality. Among these FTAs, JTEPA is the best, whilst TNZCEPA is the least beneficial FTA for Thailand. The gains from bilateral FTAs are trivial compared to those from the groupings that include ASEAN. Overall, trade diversion is offset by trade creation, thus the world finds all of the Thailand’s FTAs welfare-improving, albeit marginal.
Essay 3 evaluates tax issues for India. It investigates the implications of domestic tax hikes tailored for the rebalancing of government revenue after an FTA among ASEAN, India, China and Japan. Income tax emerges as most effective, whereas production tax appears as least favourable. However, once taking into account the existence of untaxable economic activities, the most benign options measured by real output become consumption, production, income, and factor input taxes, respectively. Hence, the introduction of the substitution elasticity between taxable and untaxable goods largely alters the outcomes, and the informal sector ought not to be neglected if the government is to gauge true effects of domestic tax tools.
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