Tax Revenues, Development, and the Fiscal Cost of Trade Liberalization, 1792-2006

42 Pages Posted: 1 Aug 2012 Last revised: 26 Nov 2017

See all articles by Julia Cage

Julia Cage

Sciences Po Paris Department of Economics; Centre for Economic Policy Research (CEPR)

Lucie Gadenne

University College London

Multiple version iconThere are 2 versions of this paper

Date Written: November 23, 2017

Abstract

This paper examines the impact of trade liberalizations on government revenues. Using a new dataset on tax revenues for 130 countries between 1792 and 2006 we find that on average countries were able to recover the tax revenues lost by liberalizing trade by using other sources of revenue. There are however important differences between the experiences of developing countries and that of today's rich countries when they were at a similar state of development. Trade liberalization led to a larger decline in tax revenues in developing countries since 1970 than in rich countries in the 19th and early 20th centuries. Over 40% of the developing countries in our sample experience a fall in total tax revenues that lasts more than ten years after an episode of trade liberalization. Results are similar when we consider government expenditures, suggesting decreases in trade tax revenues negatively affect governments' capacity to provide public services in many developing countries.

Keywords: Taxation, Development, Trade liberalization, State capacity

JEL Classification: H10, H20, F13, O17

Suggested Citation

Cage, Julia and Gadenne, Lucie, Tax Revenues, Development, and the Fiscal Cost of Trade Liberalization, 1792-2006 (November 23, 2017). Available at SSRN: https://ssrn.com/abstract=2117152 or http://dx.doi.org/10.2139/ssrn.2117152

Julia Cage (Contact Author)

Sciences Po Paris Department of Economics ( email )

28 Rue des Saints-Pères
Paris, 75007
France

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Lucie Gadenne

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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