Public Investment, Tax Evasion and Welfare Effects of a Tariff Reform

Manoj Atolia ()

No wp2003_10_01, Working Papers from Department of Economics, Florida State University

Abstract: Contrary to the case considered in literature, the experience of developing countries indicates that the tariff reforms have not been revenue neutral due to the heavy dependence of developing countries on trade taxes and pervasive tax evasion. In contrast to the plausibility of a welfare loss shown by the current literature, when the adverse effect of the loss of tariff revenue on public investment is factored in, the welfare outcome of the tariff reforms of past few decades turns out to be much more pessimistic. The constraints imposed by tariff dependence and tax evasion imply that future tariff reforms in these countries should be undertaken after strengthening their domestic tax system and augmenting the ability of their governments to fight tax evasion. For countries of sub-Saharan Africa, where such reforms are likely to be concentrated, this would need planning and capacity building over a longer time horizon.

Keywords: Trade Reform; Welfare Analysis; Public Investment; Tax Evasion (search for similar items in EconPapers)
JEL-codes: D61 D63 F13 H26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc and nep-pbe
Date: Written
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