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Compensating Lost Revenue in Regional Trade Agreements

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Author Info

  • Walkenhorst, Peter

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 pose a significant fiscal risk. To pursue regional integration despite that risk, provisions on revenue sharing have been added to several RIIs, although not all are operational. Analysis of existing arrangements suggests several desirable design features for RLCAs-among them the use of domestic tax revenues instead of economically more costly trade taxes as the preferred means of raising revenues for compensation. Moreover, simple payout criteria, possibly historically based, facilitate the monitoring and administration of the mechanism. And finally, limited periods of duration and a reduction of compensation payments over time are consistent with the revenue-enhancing effect of trade-induced growth and preserve the incentive for governments to pursue fiscal reforms.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12279.

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Date of creation: 15 Sep 2006
Date of revision:
Handle: RePEc:pra:mprapa:12279

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Related research

Keywords: Regional integration; tariff revenues; compensation mechanisms; tax replacement;

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References

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  1. Michael Keen & Johanna Elisabeth Ligthart, 1999. "Coordinating Tariff Reduction and Domestic Tax Reform," IMF Working Papers 99/93, International Monetary Fund.
  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.
  3. Michael Keen & Thomas Baunsgaard, 2005. "Tax Revenue and (or?) Trade Liberalization," IMF Working Papers 05/112, International Monetary Fund.
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Citations

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Cited by:
  1. Chiumya, Chiza, 2009. "Regional Trade Agreements: An African perspective of Challanges for Customs Policies and Future Strategies," MPRA Paper 17838, University Library of Munich, Germany, revised Aug 2009.
  2. Jean-Jacques Hallaert, 2007. "Can Regional Integration Accelerate Development in Africa? CGE Model Simulations of the Impact of the SADC FTAon the Republic of Madagascar," IMF Working Papers 07/66, International Monetary Fund.
  3. Hazel Parcon, 2008. "Disaggregating PTAs at the Role of International Division of Labor on PTA Formation," Working Papers 200806, University of Hawaii at Manoa, Department of Economics.

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