THE TRADE AND WELFARE CONSEQUENCES OF US EXPORT-ENHANCING TAX PROVISIONS

The U.S. tax code contains two provisions that encourage exports by re ducing the U.S. corporate income tax on export profits. In this paper we use an applied general equilibrium model of the U.S. economy to est imate the trade and welfare consequences of eliminating these tax prov isions. We find that the provisions ameliorate the trade-discouraging effects of U.S. tariffs, but that they also adversely affect the U.S. terms of trade to such an extent that eliminating the provisions is li kely to improve U.S. domestic welfare. We also find that a tariff redu ction that replicates the trade effects of removing the tax provisions would interact differently with other distortions in the model and wo uld have different effects on welfare.