THE TARGET RATES OF TARIFF AND TAX-REFORM

This paper derives the target rates for the simultaneous reform of tar iffs and commodity taxes in a small open economy with an endogenous pu blic good. These target rates are independent of consumer preference f or the public good but the reform increases welfare. As a special case , welfare is increased by the proportional reduction of all tariffs if it is accompanied by the uniform change of commodity taxes toward the ratio of government revenue to either private consumption or private production. We also present tariff and tax reforms which would lead th e economy to the first-best if applied continuously.