How to make domestic production more competive essays
How to make domestic production more competive
There are many ways to improve domestic competitivity. In this article, we’ll focus on fiscal measures:
1: more duties or taxes on importations from foreign nations: it’s basic and can be efficient if used carefully, and if you improve the structure of your domestic production at the same time. Yet, WTO bans such taxes.
2: have a weak currency, so that foreign products seem to be very expensive to the local population. As thefirst solution, it can be efficient if used carefully: DEMONETIZE vital importations (for example, if you have no copper and product a lot of milk, sign a contract with a country producing a lot of copper and needing milk). This demonetization makes sure local population will not suffer from weak national currency.
How to weaken national currency Many possibilities: the best one (for the state), is to emit currency progressively and to use this money to build public infrastructures and a social security system, the best one (for the banks) is to liberalize and make credit easy by very low central bank rates.
3. more subtle : suppose VAT is 20% and social charges 25%: a foreign product enters the country at the price of100$: it will be sold 120$ (20% VAT), whereas a less competitive domestic product, whose production’s cost is 110 (=35$ raw materials+60$ salary +60*0.25 social charges), will be sold 110*1.2 = 132$, 10% more than foreign product.
Now suppose the state suppresses all social charges 0% , and at the same time, to balance its payments, change VATfrom 20% to 30%.
Imported product price becomes 130 $, whereas local product’s price becomes (35+65)*1.3 = 123,5 $
Local production become more competitiveby using at the same time VAT/social charges.
One may point out that a rise of prices occurs: the less expensive product is 120 $ in thefirst case (foreign product), whereas it is 123.5 $ in the second case (domestic product). This 3% rise i…