Export Taxation: The Case of Argentina

Jeffrey B. MillerThis paper uses a partial equilibrium method to determine the welfareenhancing export tax level for Argentine soybeans, which is determined to be 25.29 percent. The actual export tax level on soybeans of 35 percent significantly exceeds the welfare-enhancing level, and the progressive export tax system that was in effect between March and July of 2008, due to a Presidential decree, set the rate even higher, at 44.1 percent. After examining the political and economic atmosphere in Argentina, I contend that the deviation between the optimal and actual tax rates can be explained by the government???s desire to generate additional revenue and protect domestic industry. Furthermore, the current administration???s policies clearly favor the industrial sector over the agricultural sector ??? two sectors of the economy that have historically been at odds with one another. The election of October 2007 showed the administration that they could win handily without the support of the farmers. This realization prompted the Kirchner administration to increase export taxes on soy twice, from 27.5 percent in November to 44.1 percent by March. N??stor and Cristina Kirchner, each of which has held the presidency, are focused on staying in power through electoral politics. N??stor Kirchner???s willingness to increase public expenditures at an abnormal rate during the election year to ensure his wife???s victory is obvious evidence of that. Export taxation is just another tool the Kirchners use to maintain the favor of their constituents in the industrial sector of the economy.Economic