International Trade and Tax Performance
32 Pages Posted: 18 Feb 2025 Last revised: 7 Apr 2025
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: 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
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