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Commercial Policy Reform in Pakistan: Opening up the Economy under Revenue Constraints

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  • Sajal Lahiri

    ()

  • Anjum Nasim

    ()

Abstract

We examine the potential for further reform of sales tax and tariffs on final goods and on intermediate inputs in Pakistan. Analysis is conducted at two levels. First, optimal taxes are computed under the assumption that tax revenue is exogenous and pays for a public good, and these are compared with their current levels. Second, we consider two piecemeal reform exercises to examine whether there is further scope for replacing the two tariffs by sales tax in a revenue-neutral way. Both approaches suggest that there is considerable scope for further reducing tariffs on final goods, but not on intermediate inputs. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s10797-005-0486-8
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 12 (2005)
Issue (Month): 6 (November)
Pages: 723-739

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Handle: RePEc:kap:itaxpf:v:12:y:2005:i:6:p:723-739

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Web page: http://www.springerlink.com/link.asp?id=102915

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Keywords: VAT; tariffs; government revenue; Pakistan;

References

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  1. Keen, Michael & Ligthart, Jenny E., 2002. "Coordinating tariff reduction and domestic tax reform," Journal of International Economics, Elsevier, vol. 56(2), pages 489-507, March.
  2. Lloyd, P. J., 1974. "A more general theory of price distortions in open economies," Journal of International Economics, Elsevier, vol. 4(4), pages 365-386, November.
  3. Ahmad,Etisham & Stern,Nicholas, 1991. "The Theory and Practice of Tax Reform in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521397421, April.
  4. Abe, Kenzo, 1992. "Tariff Reform in a Small Open Economy with Public Production," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(1), pages 209-22, February.
  5. Michael, Michael S. & Hatzipanayotou, Panos & Miller, Stephen M., 1993. "Integrated reforms of tariffs and consumption taxes," Journal of Public Economics, Elsevier, vol. 52(3), pages 417-428, October.
  6. Michael Keen and Sajal Lahiri, . "The Comparison Between Destination and Origin Principles Under Imperfect Competition," Economics Discussion Papers 424, University of Essex, Department of Economics.
  7. Shah, Shekhar & Mishra, Deepak & Panagariya, Arvind, 1996. "Demand elasticities in international trade : are they really low?," Policy Research Working Paper Series 1712, The World Bank.
  8. Lopez, Ramon & Panagariya, Arvind, 1992. "On the Theory of Piecemeal Tariff Reform: The Case of Pure Imported Intermediate Inputs," American Economic Review, American Economic Association, vol. 82(3), pages 615-25, June.
  9. Buffie,Edward F., 2001. "Trade Policy in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521004268, April.
  10. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-38, March.
  11. Lahiri, Sajal & Raimondos, Pascalis, 1996. "Correcting Trade Distortions in a Small Open Economy," Review of International Economics, Wiley Blackwell, vol. 4(3), pages 287-99, October.
  12. Lopez, Ramon E. & Rodrik, Dani, 1990. "Trade restrictions with imported intermediate inputs : When does the trade balance improve?," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 329-338, November.
  13. Lahiri, Sajal & Nasim, Anjum & Ghani, Jawaid, 2000. "Optimal second-best tariffs on an intermediate input with particular reference to Pakistan," Journal of Development Economics, Elsevier, vol. 61(2), pages 393-416, April.
  14. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-83, June.
  15. Wilson, John Douglas, 1991. "Optimal Public Good Provision with Limited Lump-Sum Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 153-66, March.
  16. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
  17. Dani Rodrik, 1992. "The Limits of Trade Policy Reform in Developing Countries," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 87-105, Winter.
  18. Fullerton, Don, 1991. "Reconciling Recent Estimates of the Marginal Welfare Cost of Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 302-08, March.
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Citations

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Cited by:
  1. Panos Hatzipanayotou & Sajal Lahiri & Michael Michael, 2011. "Trade and domestic tax reforms in the presence of a public good and different neutrality conditions," International Tax and Public Finance, Springer, vol. 18(3), pages 273-290, June.
  2. Michael S. Michael & Sajal Lahiri & Panos Hatzipanayotou, 2008. "Integrated Reforms of Indirect Taxes in the Presence of Pollution," CESifo Working Paper Series 2276, CESifo Group Munich.
  3. Lahiri, Sajal & Nasim, Anjum, 2006. "Export-promotion under revenue constraints: The case of tariff-rebate on intermediate inputs in Pakistan," Journal of Asian Economics, Elsevier, vol. 17(2), pages 285-293, April.
  4. Michael S. Michael & Panos Hatzipanayotou, 2013. "Cooperative and Non-Cooperative Equilibrium Consumption Taxes in the Presence of Cross-Border Pollution," CESifo Working Paper Series 4501, CESifo Group Munich.

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