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

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Author Info
Terence D. Agbeyegbe
Janet Gale Stotsky
Asegedech WoldeMariam

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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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Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/178.

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Length: 31 pages
Date of creation: 04 Oct 2004
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Handle: RePEc:imf:imfwpa:04/178

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Keywords: Trade liberalization ; Sub-Saharan Africa ; Exchange rates ; Tax revenues ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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  1. Andrew Feltenstein, 1992. "Tax Policy and Trade Liberalization - An Application to Mexico," IMF Working Papers 92/108, International Monetary Fund.
  2. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  3. Liam P. Ebrill & Reint Gropp & Janet Gale Stotsky, 1999. "Revenue Implications of Trade Liberalization," IMF Occasional Papers 180, International Monetary Fund.
  4. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July. [Downloadable!] (restricted)
  5. Soto, Marcelo, 2003. "Taxing capital flows: an empirical comparative analysis," Journal of Development Economics, Elsevier, vol. 72(1), pages 203-221, October. [Downloadable!] (restricted)
  6. Alonso-Borrego, Cesar & Arellano, Manuel, 1999. "Symmetrically Normalized Instrumental-Variable Estimation Using Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 36-49, January.
  7. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
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  8. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July. [Downloadable!] (restricted)
  9. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November. [Downloadable!] (restricted)
  10. David Bevan, 1995. "Fiscal Implications of Trade Liberalization," IMF Working Papers 95/50, International Monetary Fund.
  11. Janet Gale Stotsky & Asegedech WoldeMariam, 1997. "Tax Effort in Sub-Saharan Africa," IMF Working Papers 97/107, International Monetary Fund.
  12. 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. [Downloadable!] (restricted)
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  13. Khattry, Barsha & Mohan Rao, J., 2002. "Fiscal Faux Pas?: An Analysis of the Revenue Implications of Trade Liberalization," World Development, Elsevier, vol. 30(8), pages 1431-1444, August. [Downloadable!] (restricted)
  14. Greenaway, David & Morgan, Wyn & Wright, Peter, 2002. "Trade liberalisation and growth in developing countries," Journal of Development Economics, Elsevier, vol. 67(1), pages 229-244, February. [Downloadable!] (restricted)
  15. Adam, Christopher S. & Bevan, David L. & Chambas, Gerard, 2001. "Exchange rate regimes and revenue performance in Sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 64(1), pages 173-213, February. [Downloadable!] (restricted)
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  1. David A. Grigorian & Hamid Reza Davoodi, 2007. "Tax Potential vs. Tax Effort: A Cross-Country Analysis of Armenia's Stubbornly Low Tax Collection," IMF Working Papers 07/106, International Monetary Fund. [Downloadable!]
  2. Hans P. Lankes & Azim M. Sadikov & Jean-Jacques Hallaert & Dustin Smith & Katrin Elborgh-Woytek, 2006. "Fiscal Implications of Multilateral Tariff Cuts," IMF Working Papers 06/203, International Monetary Fund. [Downloadable!]
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