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The Fiscal Cost of Trade Liberalization

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  • Julia Cagé

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA))

  • Lucie Gadenne

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA))

Abstract

This paper puts the recent evolution of tax revenues in developing countries in historical perspective. Using a novel dataset on total and trade tax revenues we compare the fiscal cost of trade liberalization in developing countries and in today's rich countries at earlier stages of development. We find that trade liberalization episodes led to larger and longer-lived decreases in total tax revenues in developing countries since the 1970s than in rich countries in the 19th and early 20th centuries. The fall in total tax revenues lasts more than ten years in half the developing countries in our sample.

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Bibliographic Info

Paper provided by HAL in its series PSE Working Papers with number halshs-00705354.

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Date of creation: Jan 2014
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Handle: RePEc:hal:psewpa:halshs-00705354

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Keywords: Taxation and development ; Trade liberalization ; State capacity ; Tax and tariff reform;

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References

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  1. Alan T. Peacock & Jack Wiseman, 1961. "The Growth of Public Expenditure in the United Kingdom," NBER Books, National Bureau of Economic Research, Inc, number peac61-1.
  2. Thomas Piketty & Nancy Qian, 2009. "Income Inequality and Progressive Income Taxation in China and India, 1986-2015," American Economic Journal: Applied Economics, American Economic Association, vol. 1(2), pages 53-63, April.
  3. Timothy Besley & Torsten Persson, 2007. "The Origins of State Capacity: Property Rights, Taxation, and Politics," NBER Working Papers 13028, National Bureau of Economic Research, Inc.
  4. Joshua Aizenman & Yothin Jinjarak, 2009. "Globalisation and Developing Countries - a Shrinking Tax Base?," Journal of Development Studies, Taylor & Francis Journals, vol. 45(5), pages 653-671.
  5. M. Shahe Emran & Joseph E. Stiglitz, 2002. "On Selective Indirect Tax Reform in Developing Countries," International Trade, EconWPA 0210003, EconWPA.
  6. Easterly, William & Rebelo, Sérgio, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 885, C.E.P.R. Discussion Papers.
  7. Wacziarg, Romain & Alesina, Alberto, 1998. "Openness, Country Size and Government," Scholarly Articles 4553014, Harvard University Department of Economics.
  8. Acemoglu, Daron, 2005. "Politics and economics in weak and strong states," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(7), pages 1199-1226, October.
  9. James Alm & Jorge Martinez-Vazquez, 2007. "Tax Morale and Tax Evasion in Latin America," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0704, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  10. Naito, Takumi, 2006. "Tariff and tax reform: Dynamic implications," Journal of International Economics, Elsevier, vol. 68(2), pages 504-517, March.
  11. Michael Keen & Thomas Baunsgaard, 2005. "Tax Revenue and (or?) Trade Liberalization," IMF Working Papers 05/112, International Monetary Fund.
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Cited by:
  1. Thomas Piketty & Emmanuel Saez, 2012. "Optimal Labor Income Taxation," NBER Working Papers 18521, National Bureau of Economic Research, Inc.
  2. Miriam Frey & Zoryana Olekseyuk, 2014. "A general equilibrium evaluation of the fiscal costs of trade liberalization in Ukraine," Empirica, Springer, Springer, vol. 41(3), pages 505-540, August.

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