Import Liberalisation and Revenue Replacement: Impacts in a Small Asian Developing Economy

Sanjaya Acharya

The European Journal of Development Research, 2010, vol. 22, issue 3, 417-442

Abstract: Using a multi-sectoral computable general equilibrium model, we assess the macroeconomic and welfare impacts of import liberalisation along with revenue replacement from domestic taxes in the small developing economy of Nepal. We conclude that impact differs across activities. For example, agricultural and industrial activities expand whereas service activities contract. Overall, GDP grows marginally along with insignificant changes in other macroeconomic features. However, as an impact of this policy, incomes of the richest household group grow faster than that of poorer households. Furthermore, the replacement by the domestic indirect tax lowers the GDP growth rate and makes the distribution pattern more unfavourable to the poor; whereas the replacement by the income tax and non-agricultural commodity tax causes GDP to grow at a relatively higher rate and does not negatively affect the distribution pattern except for one of the richer household groups. The welfare gains to households in all the scenarios are positive but are very minimal.A l’aide d’un modèle d’équilibre général calculable multi-sectoriel, nous évaluons les impacts macroéconomiques et sociaux de la libéralisation des importations dans une petite économie en voie de développement, celle du Népal. Nous concluons que les impacts diffèrent en fonction des secteurs d’activités; les activités industrielles et agricoles s’étendent tandis que les activités de services se contractent. Dans l’ensemble, on observe une augmentation marginale du PIB ainsi que d’autres évolutions moins significatives au niveau macroéconomique. Cependant, les revenus des ménages les plus riches augmentent plus rapidement que ceux des ménages les plus pauvres. Par ailleurs, la compensation des pertes de recettes par les seules taxes indirectes intérieures ralentit la croissance du PIB et renforce le déséquilibre dans la distribution des revenus, au dépend des plus pauvres. Un remplacement des recettes par un impôt sur le revenu et par une taxe sur les produits non agricoles permettrait une augmentation relativement plus rapide du PIB sans défavoriser les classes moins privilégiées, mais les effets de ce cas de figure sur le bien-être social des ménages resteraient limités.

Date: 2010
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