Trade Liberalization, Exchange Rate Changes, and Tax Revenue in Sub-Saharan Africa

Author/Editor:

Terence D Agbeyegbe ; Janet Gale Stotsky ; Asegedech WoldeMariam

Publication Date:

September 1, 2004

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Empirical evidence on the relationship between trade liberalization, exchange rates, and tax revenue is mixed. This paper examines these linkages anew. Using a panel of 22 countries in Sub-Saharan Africa, over 1980-1996, we perform Generalized Method of Moment regressions to test this relationship. We find evidence that the relationship between trade liberalization and tax revenue is sensitive to the measure used to proxy trade liberalization, but that, in general, trade liberalization is not strongly linked to aggregate tax revenue or its components-though with one measure, it is linked to higher income tax revenue. Currency appreciation and higher inflation show some linkage to lower tax revenues or its components. These results show some partial consistency with previous findings, and support the notion that trade liberalization accompanied by appropriate macroeconomic policies can be undertaken in a way that preserves overall revenue yield.

Series:

Working Paper No. 04/178

Subject:

English

Publication Date:

September 1, 2004

ISBN/ISSN:

9781451858983/1018-5941

Stock No:

WPIEA1782004

Format:

Paper

Pages:

32

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