Tax Revenue and (or?) Trade Liberalization

IMF Working Papers, June 1, 2005

Source details

Study uses panel data for 111 countries over 25 years — cleaned for a variety of problems in standard data sources — to assess whether countries have recovered from revenue losses associated with past episodes of trade liberalization.
High-income countries clearly have recovered lost trade tax revenues.
Middle-income countries recovered in the order of 45-60 cents for each dollar of lost trade tax revenue, with signs of close to full recovery when separately identifying episodes in which trade tax revenues fell.
Low-income countries recovered, at best, no more than about 30 cents of each lost dollar of trade tax revenue.
Presence of a value-added tax (VAT) does not show much evidence of making it easier to cope with the revenue effects of trade liberalization.

Sample and period:
- Panel data covering 111 countries over 25 years.
Recovery magnitudes:
- High-income countries: described as having clearly recovered lost trade tax revenues (no numeric recovery provided).
- Middle-income countries: recovery in the order of 45-60 cents per lost dollar.
- Low-income countries: recovered, at best, no more than about 30 cents per lost dollar.
VAT effect:
- Little evidence that the presence of a value-added tax has in itself eased the revenue impact of trade liberalization.

Subject: Expenditure, Revenue administration, Taxes on trade, Trade liberalization, Value-added tax
Keywords: revenue, taxation, trade, trade tax, WP

1. Full Sample, 1975–20001/
- 1. Full Sample, 1975–20001/ (Markdown version)
- 1. Full Sample, 1975–20001/ (PDF)