International Trade and Tax Performance

32 Pages Posted: 18 Feb 2025 Last revised: 7 Apr 2025

See all articles by Van H. Pham

Van H. Pham

Baylor University - Department of Economics

Thai-Ha Le

Fulbright School of Public Policy and Management, Fulbright University Vietnam

Ngoc Pham Thi Bich

University of Economics Ho Chi Minh City

Date Written: January 05, 2025

Abstract

This paper examines a possible effect of de-globalization and growing isolationism on countries' fiscal capacities by studying the relationship between international trade and tax performance. We address the endogeneity between trade and tax performance by instrumenting for trade openness with geographical determinants of bilateral trade through gravity model estimations. We find that trade openness has a positive causal effect on tax revenue as a percentage of GDP.  Additionally, applying stochastic frontier analysis we find that trade openness positively influences tax efficiency. Our results suggest that the current retreat from global trade may have negative implications for countries' fiscal capacities, particularly for emerging markets where trade plays a crucial role in economic development.

Keywords: International Trade, Global Tax, Tax Ratio, Tax Effort, Tax Inefficiency

Suggested Citation

Pham, Van H. and Le, Thai-Ha and Pham Thi Bich, Ngoc, International Trade and Tax Performance (January 05, 2025). Available at SSRN: https://ssrn.com/abstract=5088335 or http://dx.doi.org/10.2139/ssrn.5088335

Van H. Pham (Contact Author)

Baylor University - Department of Economics ( email )

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HOME PAGE: http://www.baylor.edu/van_pham

Thai-Ha Le

Fulbright School of Public Policy and Management, Fulbright University Vietnam ( email )

Vietnam

HOME PAGE: http://https://scholar.google.com/citations?user=YPOCeK8AAAAJ&hl=en

Ngoc Pham Thi Bich

University of Economics Ho Chi Minh City ( email )

Vietnam

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