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Commodity price volatility and tax revenue: Evidence from developing countries

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  • Ehrhart, H.
  • Guerineau, S.

Abstract

In this paper we assess the impact of commodity price volatility on tax revenues, while existing works were concentrated on its effect on economic growth. Our empirical analysis is carried out on 80 developing countries over 1980-2008. We compute country-specific indices which measure the volatility of the international price of 41 commodities in the sectors of agriculture, minerals and energy. We find robust evidence that tax revenues in developing countries are hurt by the volatility of commodity prices. More specifically, the volatility of import prices decreases revenues from international trade tax while the volatility of export prices reduces revenues from income tax. We also show that this negative effect on tax revenues is not homogenous between countries. First, the export price volatility impact is negative except for oil exporters for whom it is null. Second, the magnitude of the negative impact of import price volatility on tax revenues depends on the tariff structure, i.e. is greater in countries where tariff dispersion is high.

Suggested Citation

  • Ehrhart, H. & Guerineau, S., 2013. "Commodity price volatility and tax revenue: Evidence from developing countries," Working papers 423, Banque de France.
  • Handle: RePEc:bfr:banfra:423
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    Cited by:

    1. Guerguil, Martine & Mandon, Pierre & Tapsoba, René, 2017. "Flexible fiscal rules and countercyclical fiscal policy," Journal of Macroeconomics, Elsevier, vol. 52(C), pages 189-220.
    2. Christian von Haldenwang & Maksym Ivanyna, 2017. "Does the political resource curse affect public finance? The vulnerability of tax revenue in resource-rich countries," WIDER Working Paper Series 007, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    Price Volatility; Tax revenues; Commodities; Developing economies.;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • F10 - International Economics - - Trade - - - General

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