Tax Structure and Revenue Instability Under External Shocks: Some General Equilibrium Calculations for Cote D'Ivoire

Abstract

This paper presents some general equilibrium calculations for Cote d'Ivoire which explore the significance of tax structure for the relationship between external shocks and revenue instability, an issue until recently little explored in the literature, either for Cote d'Ivoire or other developing countries. Results suggest that a low rate broadly-based VAT, as advocated by the World Bank in its structural adjustment lending, may be a poor revenue stabilizer compared to existing trade-based tax regimes in many lower income commodity exporting countries. With high trade taxes, the external sector is smaller, and external sector shocks generate less revenue instability under existing arrangements compared to a broadly based yield neutral alternative, such as a VAT.

JEL Classification: O55