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Abstract

This paper investigates the macroeconomic effects of service sector reform policies using two computable general equilibrium models of Sri Lankan economy. The first model assumes a perfectly competitive market economy and second one assumes a monopoly supplier market economy. Both models have been calibrated using Sri Lanka's social accounting matrix currently available. Impacts of both service sector production tax reduction and import tariff increase have been simulated. Simulation results imply that reduction of service sector production tax is more productive and socially efficient than the increase of import tariff in both perfectly competitive market and monopoly supplier market economy. Reduction of service sector production tax seems to improve not only the service sector output but also the social welfare.

Keywords: Sri Lanka Service sector, Production Tax, Import tariff, CGE model