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De-linking the Relationship between Trade Liberalization and Reduced Domestic Fiscal Budgets: The Experience of the Israeli Economy: 1984-2005

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Author Info
Joseph Pelzman (George Washington University and Ben Gurion University of the Negev)
Amir Shoham (College of Management Rishon L'Tzion and Sapir Academic College)

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Abstract

Issues concerning the consequences of trade liberalization and the resulting reduction in domestic fiscal budgets have always been the 'hot' topic in the trade policy community. This paper approaches this issue by focusing on the experience of the Israeli economy in the twenty year period (1984-2005) where Israel undertook both major tariff liberalization and a related domestic tax reform, with no reversion to border taxes. The Israeli experience highlights the initial budget revenue concerns associated with tariff liberalization, and quickly moves the issue away from border tax substitutes to domestic issues concerning enforcement. By de-linking the two issues the paper demonstrates that it is feasible to successfully tackling both external and internal tax reforms. Furthermore, it demonstrates that it is possible not to fall into the trap of looking at border taxes as a cure for internal high costs of tax revenue. The appropriate prescription for other developing or newly industrialized countries is to de-link the two tax issues, focus on the collection side of the domestic tax structure while at the same time reducing local taxes and broadening the tax base.

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Publisher Info
Article provided by International Trade and Finance Association in its journal Global Economy Journal.

Volume (Year): 6 (2007)
Issue (Month): 3 ()
Pages: 2
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Handle: RePEc:bep:glecon:6:2007:3:2

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Keywords: international trade trade liberalization fiscal policy

References listed on IDEAS
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