Decline in Gold Prices, Tax Receipts and Employment: Which Adaptation Strategy for Burkina Faso?

Abstract

Since 2007, Burkina Faso’s mining sector has been growing quickly, with gold replacing cotton as its biggest export. However, the decline in gold prices since 2012 has hit the Burkinabe economy hard. Using a static calculable general equilibrium (CGE) model, the study evaluates the macroeconomic and sectoral effects of this shock and the recent revision of its mining code. The results show that the decline in global gold prices has significantly reduced employment and income. In this context, a tax policy based solely on increasing taxes on production in the gold sector increases government revenues and a decline in total unemployment and in the income of gold mining firms. More pronounced but similar results are found when only considering application of a tax on profits of mining firms. Finally, a combination of production and profit taxes does not lead to higher employment and government revenues.