Trade Tax Revenue Research Articles

20 years of NAFTA – trends in trade and the economic effects

This year marks the twentieth anniversary of the largest economic grouping in history, both in terms of surface area and the generated GDP – the North American Free Trade Agreement – NAFTA. The grouping was established on 1 January 1994, with the objective of gradually doing away with the existing tariff and non-tariff barriers to trade between the United States, Canada, and Mexico. Its objectives and effects have long been under careful examination and subject to many analyses. Prognoses varied, from potentially significant benefits to anticipated losses, particularly for US economy. The paper is an attempt at presenting the twenty years of NAFTA operation, predominantly from the viewpoint of its impact on the trilateral trade exchange, unemployment, inflation, and the Gross Domestic Product (GDP) of its member states. The analyses suggest that NAFTA has proved its effectiveness in generating trade revenues for all its members, most notably for Mexico. However, its effects on individual income and employment were found to be marginal or, at best, moderate.

The Trade-Agreement Embarrassment

The dominant academic literature about trade agreements maintains that they are only about national terms-of-trade manipulation and not at all about purely political concerns. Non-academic economists, commentators, and diplomats by contrast think that trade agreements are all about political concerns. There are two substantive and important distinctions between the two views. i Practitioners maintain that policymakers care virtually not at all about the terms of trade or about trade-tax revenue. ii Practitioners, unlike academics, maintain that trade-agreement negotiations themselves change the underlying political economy. Observation of actual trade policy measures, though not conclusive, suggests that the practitioners are right and that the academics are wrong.

The Trade Agreement Embarrassment, Second Version

The dominant academic literature about trade agreements maintains that they are only about national terms-of-trade manipulation and not at all about purely political concerns. Non-academic economists, commentators, and diplomats by contrast think that trade agreements are all about political concerns. There are two substantive and important distinctions between the two views. Practitioners maintain that policymakers care virtually not at all about the terms of trade or about trade-tax revenue ii Practitioners, unlike academics, maintain that trade-agreement negotiations themselves change the underlying political economy. Observation of actual trade policy measures, though not conclusive, suggests that the practitioners are right and that the academics are wrong.

Trade policy reform and international trade tax revenue in Uganda

This paper contributes to the literature on the relationship between tariff reform and customs tax revenue by explicitly capturing the institutional features of decision making in the econometric modeling. The results show that exchange rate depreciation has had pass through effects to the domestic market price of imports which reduces trade tax revenue to GDP ratio in the long run, though it increases trade tax revenue in the short term. There are also seasonal patterns in the short term trade tax payment. The results point to some scope to harness the benefits associated with trade policy reform without having to worry a lot about its effects on trade (and overall) tax revenue. In fact, it would be possible to realise modest increases in trade tax revenue if the exemption regime were to be reviewed and if there was capacity to contain the disruptive impact of sharp exchange rate depreciations.

International trade, exhaustible-resource abundance and economic growth

Countries with oil and other natural resources have grown less rapidly than those countries without. This phenomenon is known as the “natural resource curse”. We develop an infinite-horizon, two-country model of trade in which countries are identical, except that one country is endowed with deposits of an exhaustible resource and the other is not. Within the context of the model, we show that this phenomenon can be explained in part by an inelastic demand for the exhaustible resource that increases growth in trade revenues and induces the resource-abundant country to invest relatively less than the country lacking in exhaustible resources. These results are derived analytically and illustrated by an empirical analysis based on plausible parameters obtained from data.

Does reduced trade tax revenue affect government spending patterns?

Many skeptics of trade liberalization in the developing world argue that lowering trade taxes can cause significant fiscal pressures in countries particularly reliant on these taxes and result in a reallocation of resources away from important development goals. This paper evaluates whether there is evidence that central governments systematically change the composition of spending priorities in the wake of lowered trade tax revenues as a share of total government revenues. We find no systematic evidence for this concern in a sample of 51 developing countries for the 1991 through 2005 period.

Tax Revenue Instability in Sub-Saharan Africa: Consequences and Remedies

This paper focuses on the sources and consequences of the instability of tax revenue in Sub-Saharan African countries. We take advantage of a unique and extraordinarily rich dataset on the composition of tax revenues for a large number of countries. Using panel data for 39 countries observed over the period 1980-2005, our results are threefold. Firstly, the instability of government tax revenue leads to an instability of both the public investment and government consumption, and finally, reduces the level of public investment. Secondly, foreign aid inflows appear to be an effective insurance mechanism against the instability of tax revenue by lowering the sensitivity of public investment with respect to tax revenue shocks. Finally, the reliance on domestic indirect taxation-based systems seems more stabilizing than the dependency on trade tax revenue.

Would Freeing Up World Trade Reduce Poverty and Inequality? The Vexed Role of Agricultural Distortions

AbstractTrade policy reforms in recent decades have sharply reduced the distortions that were harming agriculture in developing countries, yet global trade in farm products continues to be far more distorted than trade in non‐farm goods. Those distortions reduce some forms of poverty and inequality but worsen others, so the net effects are unclear without empirical modelling. This article summarises a series of new economy‐wide global and national empirical studies that focus on the net effects of the remaining distortions to world merchandise trade on poverty and inequality globally and in various developing countries. The global Linkage model results suggest that removing those remaining distortions would reduce international inequality, largely by boosting net farm incomes and raising real wages for unskilled workers in developing countries, and would reduce the number of poor people worldwide by 3 per cent. The analysis based on the Global Trade Analysis Project model for a sample of 15 countries, and nine stand‐alone national case studies, all point to larger reductions in poverty, especially if only the non‐poor are subjected to increased income taxation to compensate for the loss of trade tax revenue.

Revenue Mobilisation in Sub‐Saharan Africa: Challenges from Globalisation I – Trade Reform

This is the first of two articles evaluating the nature and extent of, and possible responses to, two of the central challenges that globalisation poses for revenue mobilisation in sub‐Saharan Africa: trade liberalisation, and corporate tax competition. Both articles use a new dataset with the features needed to address these issues meaningfully: a disentangling of tariff from commodity tax revenue, and a distinction between resource‐related and other revenues. This first article describes that dataset, and provides a broad picture of revenue developments in the region between 1980 and 2005. Countries’ experiences have varied, but the overall picture is of non‐resource revenues having been essentially stagnant. Within this, however, and with exceptions, reductions in trade tax revenue have been largely offset by increased revenue from domestic sources.

Effects of Trade and Exchange Rate Policies on Imports and Trade Tax Revenue in Nigeria

This paper examines the impact of trade and exchange rate policies on import and trade tax revenue in Nigeria. This study, which covers 1970 – 2007, adopted the ordinary least squares (OLS) method, and some diagnostic tests were performed. Time series properties of the variables were tested and error correction models were estimated. Results show that the average tariff in Nigeria has a negative impact (hinders) on import, with an impact lag. Specifically, it produced a significant negative impact on consumer goods and raw material imports, but a significant positive effect on capital goods import. The case of capital goods import is different, perhaps because of the various waivers and low tariff on this type of import. Real exchange rate is found to have an unstable or unpredictable relationship with import of all categories. Real GDP produced a significant impact on all the four categories of imports. The coefficient of income elasticity of demand for import varies from 1.6 in the case of capital goods import to 1.2 in respect of consumer goods import. In the same vein, results show that tariff has a positive and significant relationship with trade tax revenue, with an impact lag. Real exchange rate is found to have an unstable or unpredictable relationship with trade tax revenue. Real GDP produced a positive and significant impact on trade tax revenue, with an impact lag. The foregoing therefore suggests that the link between import and trade tax revenue is trade and exchange rate policies. Some policy recommendations are made to inform the finetuning of existing policies.

Tax revenue and (or?) trade liberalization

With the public finances of many developing and emerging market countries still heavily dependent on trade tax revenues, further trade liberalization may be hindered unless they are able to develop alternative sources of revenue. Against a background of, and to inform, heightened theoretical controversy as to the appropriate balance between trade and other taxes (not least the VAT), this paper uses panel data for 117 countries over 32 years—cleaned for a variety of problems in standard data sources—to address a central question of fact: Have countries recovered from domestic taxes the revenues they have lost from past episodes of trade liberalization? For high income countries, the answer is clearly ‘yes.’ For middle income countries, there are robust signs of strong replacement both concurrently with the revenue loss and—essentially dollar-for-dollar—in the long run. Signs of significant recovery by low income countries are flimsier, however, and their experiences appear to have varied widely. The picture that emerges for low income countries is thus that replacement has been (and become) higher than previous studies have suggested, but sufficiently incomplete in many cases to give cause for concern.

Do Donors Care About Declining Trade Revenue from Liberalization? An Analysis of Bilateral Aid Allocation

Many developing-country governments rely heavily on trade tax revenue. Therefore, trade liberalization can be a potential source of significant fiscal instability and may affect government spending on development activities—at least in the short run. This article investigates whether donors use aid to compensate recipient nations for lost trade revenue or perhaps to reward them for moving toward freer trade regimes.

Opium and the Company: Maritime Trade and Imperial Finances on Java, 1684–1796

AbstractWhile trade in opium was of limited financial significance in the eighteenth century to the larger accounts of the Dutch East India Company as a whole, this article shows its critical importance to the Company's comptoir accounts at Batavia. The article examines the VOC's commercial operations at Batavia in the eighteenth century and places opium trade and opium revenues within that larger context. It examines how the trade in Bengal opium through Batavia changed over time, based on a statistical analysis of the Company's accounts. These results show that opium dwarfed all other individual or groups of commodities that were available to the Company to sell profitably on Java and in the Indonesian Archipelago over the long eighteenth century.

Simulation Analysis on the Power Grid in the Northeast Asia with GTMax

ABSTRACT This study attempts to evaluate the possibility of power cooperation through the simulation analysis of electricity markets in Northeast Asian regions using the Generation-Transmission Maximization (GTMax) modeling. GTMax is a useful tool for analyzing power interconnection among countries and a software to maximize net revenues when an equilibrium for power trade and operation of power system is reached under the physical and institutional constraints. And it also contributed to building strategies based on hourly trade volumes, costs, and revenues by players participating in competitive electricity market. From the simulation results, this study indicates that the effect from interconnection with North Korea or Russia to domestic Korea electricity market is not so big. However, direct connection of transmission network from Korea to Russia has a clearly positive effect on power cooperation. Moreover, it is expected that power cooperation will be done in a way South Korea mainly imports. To maximize the effect of power transfer, it is absolutely necessary to expand the transfer capability of transmission line. Nonetheless, in CASE 5 (interconnecting South Korea with North Korea, Russia and China) scenario, positive effect in average LMP in South Korea is not likely to happen compared with CASE 2 (interconnecting South Korea with North Korea) scenario. And positive effect in average LMP in South Korea has been appeared in CASE 6 (interconnecting South Korea with North Korea, Russia, China and Direct transfer from Russia to Korea though power network) scenario.

Gewerbesteuerreform 2008 – Belastungswirkungen bei Unternehmen und Gemeinden

Abstract The draft of a 2008 Corporate Tax Reform Law adopted in March 2007 also reforms the trade tax. This applies both to the rate and to the tax base. In future, not only the interest on permanent debt will be included in the tax base, but also all interest paid as well as the financing share of rents, leases and leasing instalments, though only at 25 % instead of 50 %. Since the interest barrier will also affect the trade tax base, it is still unclear how all the measures will affect the receipts of the municipalities and what tax burdens they will place on the various forms of business entity. Using the trade tax statistics from the year 2001, the changes in burdens resulting from the trade tax reform have been simulated. Taking account of the interest barrier, the result for municipalities is a drop in trade tax revenue. Incorporated businesses will have to pay less due to the reform and unincorporated companies will have to pay more.

Reform of the German Local Trade Tax in 2008: Effects on Municipalities and Companies

The 2008 Corporate Tax Reform Law was passed by the parliament in July 2007. It also reforms the trade tax. This applies both to the rate and to the tax base. In future, not only the interest on permanent debt will be included in the tax base, but also all interest paid as well as the financing share of rents, leases and leasing instalments, though only at 25% instead of 50%. Since the interest barrier will also affect the trade tax base, it is still unclear how all the measures will affect the receipts of the municipalities and what tax burdens they will place on the various forms of business entity. Using the trade tax statistics from the year 2001, the changes in burdens resulting from the trade tax reform have been simulated. Taking account of the interest barrier, the result for municipalities is a drop in trade tax revenue. Incorporated businesses will have to pay less due to the reform and unincorporated companies will have to pay more.

Do Donors Care about Declining Trade Revenues from Liberalization? An Analysis of Aid Allocation

Many developing country governments rely heavily on trade tax revenue. Therefore, trade liberalization can be a potential source of significant fiscal instability, and may affect government spending on development activities. Donor nations may take this into account in making their aid allocation decisions for developing nations. Our findings suggest that bilateral donors provide substantially larger amounts of aid to compensate (or reward) liberalizing recipient nations who also face declining trade tax revenues. Interestingly, these effects are statistically insignificant in the context of multilateral aid. Multilateral donors are more focused on income per capita and may be using it as a de facto measure of average living standards in the recipient nations.

The Impact of Trade Liberalization on Revenue Mobilization and Stability in Sudan

Abstract: This paper attempts to examine key aspects of the Sudanese tax system, paying particular attention to the impact of the recent trade liberalization on government revenues. An eclectic method of analysis is utilized. The results show that the Sudanese tax system as a whole is not buoyant or elastic; the same applies for its major handles. The liberalization reform did not appear to have enhanced revenue productivity and stability in the country. This result indicates the presence of substantial slacks in tax collection and tax evasion. The analysis also shows that tax evasion is the main problem facing tax administration; on average, it stands at about 53 per cent of actual tax yield and 33 per cent of the potential tax yield inclusive of the underground economy's gross domestic product (GDP). Assessment of the determinants of trade revenue suggests that the yield of trade tax has improved due to liberalization; however, the marginal benefit of tax evasion is still considerable. The findings imply that a committed tax reform is crucial for augmenting tax revenue yield as well as for fiscal consolidation and macroeconomic stability.

Gains from Trade in Government Revenue and Pareto-Efficient International Taxation

Abstract This paper uses the concept of gains from trade in government revenue to clarify and extend the analysis of Keen and Wildasin (2004). It shows that their results derive from the use of trade taxes to achieve gains from trade in revenue in circumstances when direct international transfers cannot be used for this purpose. The paper shows that, in such circumstances, Pareto-efficient international equilibria are globally production-inefficient only in special cases, but origin-based commodity taxes, source-based capital taxes, and taxes on trade are nevertheless typically part of a Pareto-efficient international tax system. However, this conclusion depends on ruling out the use of international transfers to trade revenue, the case for which is not compelling.

Trade Imbalances, International Investment, and a Limitation of Lerner's Symmetry Theorem

This paper sounds a caution to international trade economists, demonstrating that the equilibrium trade imbalances implied by most models of international investment disturb the symmetry between import tariffs and export taxes found by Lerner (1936). When trade is unbalanced, Lerner's equivalence result holds only when (i) trade tax revenue is redistributed among consumers, (ii) neither the import tariff nor the export tax would be prohibitive, and (iii) the value of trade imbalance at world prices is invariant to instrument choice. The last condition implies that Lerner symmetry generally will not obtain in many otherwise standard trade models with international investment, since remittances to foreign investors - a source of permanent trade imbalances- typically depend on both relative and absolute local prices, and thus on the government's choice of trade tax instrument. Endogenizing trade policy only exacerbates the asymmetry, since international investment influences government preferences over trade policy instruments as well as levels. Notably, Lerner symmetry can be resurrected by introducing a third policy tool in the form of a direct a tax on international investment returns. Future work therefore should either reinstate Lerner symmetry by adopting investment taxes, or at very the least, acknowledge the trade tax asymmetry inherent to models with international investment.