Briefly explain how import tariffs can be part of a set of government policies to increase national well-being for small developing countries where government revenue is difficult to obtain by other means such as an income or sales tax.
What will be an ideal response?
POSSIBLE RESPONSE: In a poor or developing nation, tariffs as a source of revenue may be beneficial and even better than alternative policies, both for the nation and for the world as a whole. In principle, a developing-country's government can use tariff revenues to create net social gains. The developing government argument states that in poor, developing nations the import tariff becomes a crucial source of government revenue. Revenue can be raised more inexpensively with a few customs officials who tax imports than by levying other forms of taxes.
Taxes on production, consumption, income, and property may be insufficient to achieve the country's social welfare objectives. Additionally, taxes on these sources of wealth may not be effectively collected in developing nations if they cannot be measured and monitored. The developing government argument is a valid reason why very low-income countries receive, on average, about 13 percent of their government revenue from customs duties, which is a higher dependence on customs revenue than is found in equally trade-oriented high-income countries.
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