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

By Terence D Agbeyegbe, Janet Gale Stotsky, Asegedech WoldeMariam

September 1, 2004

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Terence D Agbeyegbe, Janet Gale Stotsky, and Asegedech WoldeMariam. Trade Liberalization, Exchange Rate Changes, and Tax Revenue in Sub-Saharan Africa, (USA: International Monetary Fund, 2004) accessed September 18, 2024

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.

Subject: Consumption taxes, Revenue administration, Taxes on trade, Trade facilitation, Trade liberalization

Keywords: Liberalization, Tax revenue, Trade, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/178
Stock No:

WPIEA1782004
ISBN:

9781451858983
ISSN:

1018-5941

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