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Trade Liberalization, Exchange Rate Changes, and Tax Revenue in Sub-Saharan Africa

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Abstract

Empirical evidence on the relationship between trade liberalization, exchange rates, and tax revenue is mixed. This paper examines these linkages anew. Using a panel of 22 countries in Sub-Saharan Africa, over 1980–1996, we perform Generalized Method of Moment regressions to test this relationship. We find evidence that the relationship between trade liberalization and tax revenue is sensitive to the measure used to proxy trade liberalization, but that, in general, trade liberalization is not strongly linked to aggregate tax revenue or its components—though with one measure, it is linked to higher income tax revenue. Currency appreciation and higher inflation show some linkage to lower tax revenues or its components. These results show some partial consistency with previous findings, and support the notion that trade liberalization accompanied by appropriate macroeconomic policies can be undertaken in a way that preserves overall revenue yield.

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Bibliographic Info

Paper provided by Hunter College: Department of Economics in its series Hunter College Department of Economics Working Papers with number 403.

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Length: 32 pages
Date of creation: 2004
Date of revision: 2004
Handle: RePEc:htr:hcecon:403

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Keywords: Trade liberalization; exchange rates; tax revenue; Sub-Saharan Africa;

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  12. Wacziarg, Romain & Welch, Karen Horn, 2003. "Trade Liberalization and Growth: New Evidence," Research Papers 1826, Stanford University, Graduate School of Business.
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Cited by:
  1. David A. Grigorian & Hamid Reza Davoodi, 2007. "Tax Potential vs. Tax Effort," IMF Working Papers 07/106, International Monetary Fund.
  2. Mutascu, Mihai, 2012. "Influence of clime conditions on tax revenues," MPRA Paper 40324, University Library of Munich, Germany.
  3. Jean-Louis COMBES & Gérard CHAMBAS & Jean-François BRUN, 2006. "Recettes publiques des pays en développement. Méthode d’évaluation," Working Papers 200611, CERDI.
  4. Mihai Mutascu, 2012. "Taxation under media capture," Economics Bulletin, AccessEcon, vol. 32(4), pages 2752-2767.
  5. Azim M. Sadikov & Hans P. Lankes & Dustin Smith & Katrin Elborgh-Woytek & Jean-Jacques Hallaert, 2006. "Fiscal Implications of Multilateral Tariff Cuts," IMF Working Papers 06/203, International Monetary Fund.
  6. Hisali, Eria, 2012. "Trade policy reform and international trade tax revenue in Uganda," Economic Modelling, Elsevier, vol. 29(6), pages 2144-2154.
  7. Baunsgaard, Thomas & Keen, Michael, 2010. "Tax revenue and (or?) trade liberalization," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 563-577, October.
  8. International Monetary Fund, 2012. "Mobilizing Revenue in Sub-Saharan Africa," IMF Working Papers 12/108, International Monetary Fund.
  9. Ricardo Fenochietto & Carola Pessino, 2013. "Understanding Countries’ Tax Effort," IMF Working Papers 13/244, International Monetary Fund.
  10. Mutascu, Mihai & Danuletiu, Dan, 2013. "The literacy impact on tax revenues," Economics Discussion Papers 2013-63, Kiel Institute for the World Economy.
  11. Carola Pessino & Ricardo Fenochietto, 2010. "Determining countries’ tax effort," Hacienda Pública Española, IEF, vol. 195(4), pages 65-87, december.
  12. Mahdavi, Saeid, 2008. "The level and composition of tax revenue in developing countries: Evidence from unbalanced panel data," International Review of Economics & Finance, Elsevier, vol. 17(4), pages 607-617, October.

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