Question

Suppose now that the country imposing the export tax in part (a) of this question is a "large” country rather than a "small” country. Is it an advantage or a disadvantage for a country to be "large” rather than "small” when it imposes an export tax? Explain. With references.

Answer 1

Export tax is the tax that is applied to those product and services that are exported to other countries.

Export tax is used to curb the export of all those goods that is being consumed in the country. It helps in reducing the inflation.

For a larger country, applying export tax can be advantageous for consumers as well as the government as market demand of product and services will be bigger than that of smaller countries. It requires bigger supply to meet the market demand and export tax helps here.

If export tax is not applied then more product will be exported to other countries. It will cause supply shortage and inflation will accelerate. It is a very disadvantageous situation for any bigger country as it weakens the purchasing power of the currency also.

Export tax will also increase tax revenue for the government. Though, for producers, it will be disadvantageous as their profit margin or producer surplus will come down.

Country consists of three parties, namely consumers, Producers and government.