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Therefore, the new measurement of Sector Tax Burden (STBM2), is:

(9) STBM2 = TM0 - [tm . PdM . (DdM - M)] / VASM < PTSM1

Finally, as always the point of interests in the economic field is not the absolute levels of prices but their relative levels. So comparing the Sector Tax Burden estimated by the two approaches:

  • a)

    In the traditional version (sub-index 1):

    • (10)

      STBM1 / STBX1 = (TM0 / VASM) / [TX0 + (tx. Pdx. X)] / VASX

  • b)

    In the new-correct version (sub-index 2):

(11) STBM2

/ STBX2

= {TM0 - [tm . Pdm . (DdM - M)] / VASM} / [TX0 + (tx . Pdx . DdX) +

  • +

    (tx . Pdx . X] / VASX

and, from (7) and (9) result:

(12) STBM2 / STBX2 < STBM1 / STBX1

It should be notice that distortion in relative prices in favor of sector producing importable goods or against sector producing exportable goods is achieved fixing Custom Duties and Tax on Exports at the same time, or indistinctly fixing only Tax on Imports and eliminating Tax on Exports, or vice versa. The equivalence policy is achieved graduating differently the level of tax rates; so, if Tax on Exports rates and Tax on Imports rates were similar, for example 25%, the same distortion would be achieved eliminating Tax on Exports and elevating Tax on Import rates to 50%, or fixing a Tax on Export rates of 50% with zero tax rates on Imports.

Multiple exchange rates

Finally, the differentiation of relative prices between exportable and importable goods can be pursued by the equivalent public policy of a multiple exchange rate system. That is:

( 1 3 ) P d X = P i X . Π * ( 1 4 ) P d M = P i M . Π *

where PiX is the international price in dollar terms of the exportable good, and PiM is the international price in dollar terms of the importable good. If Π* is the dollar-peso exchange rate in equilibrium, relative prices can be differentiated by a multiple exchange rates system:

( 1 5 ) Π X = Π * ( 1 - t x ) ( 1 6 ) Π M = Π * ( 1 + t that is, m )

importable good (that receives a total subsidy of 45 pesos, because the raise of the domestic price implies a subsidy of 90 cents by each unity sold, that is, 50 x 0,9 = 45).

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