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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. Timothy Besley & Torsten Persson, 2009. "The origins of state capacity: property rights, taxation and politics," LSE Research Online Documents on Economics 33768, London School of Economics and Political Science, LSE Library.
  2. Aizenman, Joshua & Jinjarak, Yothin, 2006. "Globalization and Developing Countries - a Shrinking Tax Base ?," Santa Cruz Department of Economics, Working Paper Series qt8r12k4xr, Department of Economics, UC Santa Cruz.
  3. Emran, M. Shahe & Stiglitz, Joseph E., 2005. "On selective indirect tax reform in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 599-623, April.
  4. Easterly, William & Rebelo, Sérgio, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," CEPR Discussion Papers 885, C.E.P.R. Discussion Papers.
  5. 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.
  6. 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.
  7. Daron Acemoglu, 2005. "Politics and Economics in Weak and Strong States," NBER Working Papers 11275, National Bureau of Economic Research, Inc.
  8. Baunsgaard, Thomas & Keen, Michael, 2010. "Tax revenue and (or?) trade liberalization," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 563-577, October.
  9. Alesina, Alberto & Wacziarg, Romain, 1998. "Openness, country size and government," Journal of Public Economics, Elsevier, vol. 69(3), pages 305-321, September.
  10. Naito, Takumi, 2006. "Tariff and tax reform: Dynamic implications," Journal of International Economics, Elsevier, vol. 68(2), pages 504-517, March.
  11. 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 paper0704, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
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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.

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