Fiscal Constraints, Collection Costs, and Trade Policies
That free trade allows economies in an ideal world to achieve the greatest possible welfare is one of the few undisputed propositions in economics. In reality, however, free trade is rare. The author argues that many developing countries intervene in trade at least partly to raise revenues, and that...
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| Format: | Publications & Research |
| Language: | en_US |
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World Bank, Washington, DC
2015
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| Online Access: | http://hdl.handle.net/10986/21460 |
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okr-10986-21460 |
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oai_dc |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
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en_US |
| topic |
accounting administrative capacity agriculture allocation of resources balance of payments balance of payments crisis bonds budget deficit capital goods central bank central government citizens conditionality constitution corporate income tax corruption debt debt service demand curve demand elasticity deregulation developed countries distortionary effects domestic demand domestic industries domestic market domestic taxes econometric analysis economic policies economic policy elasticities elasticity elasticity of demand empirical analysis empirical evidence evasion exchange rate excise taxes expenditure expenditures export quantity export taxes exports external tariff federal government fiscal fiscal burden fiscal crisis fiscal performance fiscal reform fiscal reforms fiscal shock fiscal stance fixed costs foreign debt foreign direct investment foreign exchange foreign exchange reserves foreign loans foreign trade free trade GDP government finance government revenue government revenues government spending government's policy import duties import duty import tariffs imports income income taxes industrial policy infant industry argument inflation inflation taxes international trade investment incentives less developed countries macroeconomic crises macroeconomic stabilization marginal cost marginal tax rates market power market structure Ministry of Finance natural resources oil oil prices optimal tariffs per capita income political economy price elasticities price stability producers public enterprises public finance quantitative restrictions quotas rationalization real GDP revenue collection revenue growth revenue sources sales taxes state enterprises strategic trade policy structural adjustment structure of government surcharges tariff rate tariff rates tariff revenues tax tax collection tax collections tax exemptions tax payment tax policy tax rate tax rates tax receipts tax reform tax reforms tax regime tax returns tax revenue tax revenues tax system tax systems taxation technical assistance terms of trade trade barriers trade liberalization trade policies trade protection trade reforms trade regime trade restrictions trade taxes utility function value added value added taxes wages fiscal constraints trade policy welfare economics trade liberalization developing countries case studies revenue mobilization tax reforms tariff policy fixed costs tax collection trade taxes fiscal policy quota calculations econometric models of international trade UNCTAD Trade & Development Board |
| spellingShingle |
accounting administrative capacity agriculture allocation of resources balance of payments balance of payments crisis bonds budget deficit capital goods central bank central government citizens conditionality constitution corporate income tax corruption debt debt service demand curve demand elasticity deregulation developed countries distortionary effects domestic demand domestic industries domestic market domestic taxes econometric analysis economic policies economic policy elasticities elasticity elasticity of demand empirical analysis empirical evidence evasion exchange rate excise taxes expenditure expenditures export quantity export taxes exports external tariff federal government fiscal fiscal burden fiscal crisis fiscal performance fiscal reform fiscal reforms fiscal shock fiscal stance fixed costs foreign debt foreign direct investment foreign exchange foreign exchange reserves foreign loans foreign trade free trade GDP government finance government revenue government revenues government spending government's policy import duties import duty import tariffs imports income income taxes industrial policy infant industry argument inflation inflation taxes international trade investment incentives less developed countries macroeconomic crises macroeconomic stabilization marginal cost marginal tax rates market power market structure Ministry of Finance natural resources oil oil prices optimal tariffs per capita income political economy price elasticities price stability producers public enterprises public finance quantitative restrictions quotas rationalization real GDP revenue collection revenue growth revenue sources sales taxes state enterprises strategic trade policy structural adjustment structure of government surcharges tariff rate tariff rates tariff revenues tax tax collection tax collections tax exemptions tax payment tax policy tax rate tax rates tax receipts tax reform tax reforms tax regime tax returns tax revenue tax revenues tax system tax systems taxation technical assistance terms of trade trade barriers trade liberalization trade policies trade protection trade reforms trade regime trade restrictions trade taxes utility function value added value added taxes wages fiscal constraints trade policy welfare economics trade liberalization developing countries case studies revenue mobilization tax reforms tariff policy fixed costs tax collection trade taxes fiscal policy quota calculations econometric models of international trade UNCTAD Trade & Development Board Kubota, Keiko Fiscal Constraints, Collection Costs, and Trade Policies |
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Bolivia Jamaica Morocco |
| relation |
Policy Research Working Paper;No. 2366 |
| description |
That free trade allows economies in an ideal world to achieve the greatest possible welfare is one of the few undisputed propositions in economics. In reality, however, free trade is rare. The author argues that many developing countries intervene in trade at least partly to raise revenues, and that episodes of trade liberalization are often linked to tax reform. The author proposes a formal model to explain why developing countries rely disproportionately on tariffs for government revenues, when tax reforms are expected, and under what conditions trade liberalization will take place. The model uses the simple concept of the fixed costs involved in tax collection. When fiscal needs are limited, and the infrastructure to monitor, administer, and collect taxes is not well-developed, it is optimal for governments to rely on a handful of easy-to-collect taxes, which generally includes trade taxes. When fiscal needs expand, the excess burden on the tax base grows rapidly, and tax reform becomes necessary. Tax reforms reduce reliance on the existing tax base, often allowing the statutory tax rate to be lowered. This is a form of trade liberalization when it involves the trade sector. The author defines trade liberalization in a somewhat unconventional way: only reductions in the rates at which the trade sector is taxed, are considered trade liberalization. Tariffication of quotas, normally considered a form of trade liberalization, is treated as tax reform (expanding the tax base). The author tests this hypothesis empirically, first through three historic case studies (Bolivia, Jamaica, and Morocco) and then through systematic econometric analysis. She constructs a set of panel data for 38 developing countries for 1980-92, using the statutory tariff rates published by UNCTAD. She uses empirical tests to isolate the cause of trade liberalization. The results support her hypothesis: tariff rates are positively related to fiscal shocks, and negatively associated with episodes of tax reform |
| format |
Publications & Research |
| author |
Kubota, Keiko |
| author_facet |
Kubota, Keiko |
| author_sort |
Kubota, Keiko |
| title |
Fiscal Constraints, Collection Costs, and Trade Policies |
| title_short |
Fiscal Constraints, Collection Costs, and Trade Policies |
| title_full |
Fiscal Constraints, Collection Costs, and Trade Policies |
| title_fullStr |
Fiscal Constraints, Collection Costs, and Trade Policies |
| title_full_unstemmed |
Fiscal Constraints, Collection Costs, and Trade Policies |
| title_sort |
fiscal constraints, collection costs, and trade policies |
| publisher |
World Bank, Washington, DC |
| publishDate |
2015 |
| url |
http://hdl.handle.net/10986/21460 |
| _version_ |
1764448326563921920 |
| spelling |
okr-10986-214602021-04-23T14:04:02Z Fiscal Constraints, Collection Costs, and Trade Policies Kubota, Keiko accounting administrative capacity agriculture allocation of resources balance of payments balance of payments crisis bonds budget deficit capital goods central bank central government citizens conditionality constitution corporate income tax corruption debt debt service demand curve demand elasticity deregulation developed countries distortionary effects domestic demand domestic industries domestic market domestic taxes econometric analysis economic policies economic policy elasticities elasticity elasticity of demand empirical analysis empirical evidence evasion exchange rate excise taxes expenditure expenditures export quantity export taxes exports external tariff federal government fiscal fiscal burden fiscal crisis fiscal performance fiscal reform fiscal reforms fiscal shock fiscal stance fixed costs foreign debt foreign direct investment foreign exchange foreign exchange reserves foreign loans foreign trade free trade GDP government finance government revenue government revenues government spending government's policy import duties import duty import tariffs imports income income taxes industrial policy infant industry argument inflation inflation taxes international trade investment incentives less developed countries macroeconomic crises macroeconomic stabilization marginal cost marginal tax rates market power market structure Ministry of Finance natural resources oil oil prices optimal tariffs per capita income political economy price elasticities price stability producers public enterprises public finance quantitative restrictions quotas rationalization real GDP revenue collection revenue growth revenue sources sales taxes state enterprises strategic trade policy structural adjustment structure of government surcharges tariff rate tariff rates tariff revenues tax tax collection tax collections tax exemptions tax payment tax policy tax rate tax rates tax receipts tax reform tax reforms tax regime tax returns tax revenue tax revenues tax system tax systems taxation technical assistance terms of trade trade barriers trade liberalization trade policies trade protection trade reforms trade regime trade restrictions trade taxes utility function value added value added taxes wages fiscal constraints trade policy welfare economics trade liberalization developing countries case studies revenue mobilization tax reforms tariff policy fixed costs tax collection trade taxes fiscal policy quota calculations econometric models of international trade UNCTAD Trade & Development Board That free trade allows economies in an ideal world to achieve the greatest possible welfare is one of the few undisputed propositions in economics. In reality, however, free trade is rare. The author argues that many developing countries intervene in trade at least partly to raise revenues, and that episodes of trade liberalization are often linked to tax reform. The author proposes a formal model to explain why developing countries rely disproportionately on tariffs for government revenues, when tax reforms are expected, and under what conditions trade liberalization will take place. The model uses the simple concept of the fixed costs involved in tax collection. When fiscal needs are limited, and the infrastructure to monitor, administer, and collect taxes is not well-developed, it is optimal for governments to rely on a handful of easy-to-collect taxes, which generally includes trade taxes. When fiscal needs expand, the excess burden on the tax base grows rapidly, and tax reform becomes necessary. Tax reforms reduce reliance on the existing tax base, often allowing the statutory tax rate to be lowered. This is a form of trade liberalization when it involves the trade sector. The author defines trade liberalization in a somewhat unconventional way: only reductions in the rates at which the trade sector is taxed, are considered trade liberalization. Tariffication of quotas, normally considered a form of trade liberalization, is treated as tax reform (expanding the tax base). The author tests this hypothesis empirically, first through three historic case studies (Bolivia, Jamaica, and Morocco) and then through systematic econometric analysis. She constructs a set of panel data for 38 developing countries for 1980-92, using the statutory tariff rates published by UNCTAD. She uses empirical tests to isolate the cause of trade liberalization. The results support her hypothesis: tariff rates are positively related to fiscal shocks, and negatively associated with episodes of tax reform 2015-02-13T19:51:34Z 2015-02-13T19:51:34Z 2000-06 http://hdl.handle.net/10986/21460 en_US Policy Research Working Paper;No. 2366 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Bolivia Jamaica Morocco |