The Poverty Impacts of the Doha Round in Cameroon: The Role of Tax Policy

44 Pages Posted: 17 Aug 2005

See all articles by Christian Arnault Emini

Christian Arnault Emini

University of Yaounde II

John Cockburn

Partnership for Economic Policy (PEP); Université Laval; Partnership for Economic Policy (PEP)

Bernard Decaluwe

Université Laval - Département d'Économique

Date Written: October 2005

Abstract

The aim of this paper is to assess the possible impacts of the Doha Round of negotiations on poverty in Cameroon. During the recent period of economic recovery, Cameroon has enjoyed a sharp decline in poverty with the headcount index falling from 53.3 percent of inhabitants in 1996 to 40.2 percent in 2001, mostly thanks to economic growth rather than redistribution. Will the current trade negotiations under the Doha Round reinforce or curb this trend? We apply a CGE microsimulation model which involves 10,992 households in order to address this question. The Doha Round is found to be poverty reducing for Cameroon. For the whole country, the estimate of the net number of people who are lifted out of poverty is 22,000 following this scenario. Further investigations indicate that more ambitious world trade liberalization leads to greater poverty alleviation at the national level, while Cameroon's domestic trade liberalization has adverse poverty and inequality impacts - despite giving rise to higher aggregate welfare. Under the Doha scenario, the cuts in Cameroon's tariffs are very small (the average tariff rate moves from 11.79 percent in the base run to merely 11.66 percent) so that ROW liberalization effects on world prices more than offset the adverse own liberalization effects in this scenario. If the Rest of the World (ROW) and Cameroon full trade liberalizations are combined, the adverse impacts of own liberalization outweigh the favorable outcomes of the ROW liberalization. Our results suggest furthermore that the choice of tax replacement instrument can have an important bias in poverty impacts: poverty gets worse in our country-case study when using an imperfect VAT instead of a neutral replacement tax to compensate lost tariff revenue, and gets even worse when using a consumption tax. Key reasons here are the supplementary distortions which are nil in case of a neutral tax and greatest in the case of a consumption tax. In addition, accompanying measures should be considered to avoid poverty increases in the framework of Economic Partnership Agreements currently in negotiation between ACP countries and the EU, which propose a drastic dismantlement of ACP tariffs over the next few years.

Keywords: Computable general equilibrium, microsimulation, international

JEL Classification: D33, D58, E27, F13, F14, I32, O15, O53

Suggested Citation

Emini, Christian Arnault and Cockburn, John and Decaluwe, Bernard, The Poverty Impacts of the Doha Round in Cameroon: The Role of Tax Policy (October 2005). World Bank Policy Research Working Paper No. 3746; MPIA Working Paper No. 2005-04. Available at SSRN: https://ssrn.com/abstract=781406

Christian Arnault Emini (Contact Author)

University of Yaounde II ( email )

Yaounde
Cameroon

John Cockburn

Partnership for Economic Policy (PEP) ( email )

P.O. Box 30772-00100
ICIPE - Duduville Campus, Kasarani
Nairobi
Kenya

Université Laval ( email )

Dept. of Economics
Québec, Quebec G1V 0A6
Canada

Partnership for Economic Policy (PEP) ( email )

Duduville Campus, Kasarani
P.O. Box 30772-00100
Nairobi
Kenya

Bernard Decaluwe

Université Laval - Département d'Économique ( email )

2325 Rue de l'Université
Ste-Foy, Quebec G1K 7P4 G1K 7P4
Canada
418-656-5561 (Phone)
418-656-7798 (Fax)

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