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Revenue loss compensation mechanisms in regional trade agreements

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  • Peter Walkenhorst

    (International Trade Department, The World Bank, Washington DC, USA)

Abstract

For countries that have weak domestic tax administrations and rely heavily on trade taxes for government finances, lowering or eliminating tariffs on trade with regional partners can constitute a significant fiscal risk. In order to nevertheless pursue regional integration, provisions on revenue loss compensation have been introduced into a number of regional trade agreements. This paper reviews, compares and analyses the central design features of existing mechanisms. The discussion suggests that arrangements of limited duration that are based on revenues from domestic taxes while distributing compensation funds according to historical payout criteria have the best prospects of success. Copyright © 2006 John Wiley & Sons, Ltd.

Suggested Citation

  • Peter Walkenhorst, 2006. "Revenue loss compensation mechanisms in regional trade agreements," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(3), pages 379-385.
    • Handle: RePEc:wly:jintdv:v:18:y:2006:i:3:p:379-385
    DOI: 10.1002/jid.1221
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    References listed on IDEAS

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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. Clarete, Ramon L. & Whalley, John, 1987. "Comparing the marginal welfare costs of commodity and trade taxes," Journal of Public Economics, Elsevier, vol. 33(3), pages 357-362, August.
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