Question

14. Impact of Government Policies on Trade Governments of many countries enact policies that can have a major impact on international trade flows. a. Explain how governments might give their local firms a competitive advantage in the international trade arena. b. Why might different tax laws on corporate income across countries allow firms from some countries to have a competitive advantage in the international trade arena? c. If a country imposes lower corporate income tax rates, does that provide an unfair advantage?

Answer 1

A)The government can give competitive advantage to the local firms

*Providing them raw materials and machinery at a subsidised rate

*Establishing more special economic zones for local firms where they get uninterrupted power supply and many other benefits at low rate

*The government can also encourage exports of the local firms and charge less import tax on their machinery import

*Tax holidays

B)different tax benefits such as tax holidays,free movent of goods and capital provides organisation to sell their products at the global market at a very low rate giving them the competitive advantage to these firms over other firms

C)No ,if a country imposes lower corporate tax it gives a positive advantage to country as well the firms as they can sell the products at a lower rate giving competitive advantage and country gets to improve its economy and GDP