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Uniform commercial policy, illegal trade, and the real exchange rates : a theoretical analysis (الإنجليزية)

Countries on fixed exchange rates sometimes use uniform tariff cum subsidy (UTCS) schemes as a way of achieving a real depreciation without disturbing the nominal exchange rate. A potential drawback of this policy in relation to an across-the-board devaluation is that a UTCS scheme provides incentives for illegal trade. Using an optimizing model with currency convertibility and illegal trade, the author finds that welfare is lower under a UTCS scheme...
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