Aid for Trade and trade tax revenues in developing countries

Abstract

This paper examines whether Aid for Trade (AfT) compensates for the losses of trade tax revenues in developing countries further to the liberalization of their trade regimes. The empirical analysis suggests that unlike other countries, AfT flows to highly AfT-dependent countries are not affected when these countries experience lower trade tax revenue. It would therefore be desirable that donors extend higher AfT to recipient-countries, notably poorest countries when they are confronted with losses in their trade tax revenue. This is particularly important for them given the structural challenges associated with their tax transition reform.