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The incidence of import liberalization with and without a value added tax: an application to bangladesh

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  • Farida C. Khan

Abstract

This paper examines the impact of import tariffs and tariff-replacing indirect taxes on the welfare of households grouped by the size distribution of income. A computable general equilibrium model for Bangladesh is simulated to examine the removal of quantitative restrictions and tariffs as well as the replacement of trade taxes with a value added tax (VAT). Import liberalization alone expands the manufacturing sector and increases the welfare of lower income households. If a uniform VAT is placed on both imports and all non-agricultural production in order to replace the lost tariff revenue for the government, some of the gains from import liberalization are diminished. If exports are exempted from the VAT, the gains are sustained to a greater degree. With a combination of tariff liberalization, quota markups, and the VAT, the economy goes through a contraction and the welfare of all households is reduced.

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  • Farida C. Khan, 1996. "The incidence of import liberalization with and without a value added tax: an application to bangladesh," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(4), pages 389-412.
    • Handle: RePEc:taf:jpolrf:v:1:y:1996:i:4:p:389-412
    DOI: 10.1080/13841289608523369
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    Cited by:

    1. Chauffour, Jean-Pierre & Ivanic, Maros & Laborde, David & Maliszewska, Maryla & Martin, Will, 2010. "Impact of a Free Trade Agreement between Ukraine and the European Union on Ukraine's Agricultural Sector," Conference papers 332031, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

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