Fiscal Constraints, Collection Costs, and Trade Policies

22 Pages Posted: 16 Feb 2005

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The last two decades witnessed trade liberalization in many developing countries. What caused this trend, and why have trade barriers been so ubiquitous when economic theory overwhelmingly supports free trade? This paper proposes that governments' revenue needs are the driving force. Governments may rely disproportionately on trade taxes because they are inexpensive to collect. Trade liberalization is an integral part of a tax reform: a tax base expansion is necessary to allow governments to reduce tariff rates. This hypothesis is supported by a panel data analysis of 27 developing countries.

Suggested Citation

Kubota, Keiko, Fiscal Constraints, Collection Costs, and Trade Policies. Available at SSRN:

Keiko Kubota (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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