Effects of the Tax Transition Reform on the Real Exchange Rate through the Trade Openness Channel in Developing Countries

Sèna Kimm Gnangnon ()
Additional contact information
Sèna Kimm Gnangnon: World Trade Organization, Switzerland, Postal: Rue de Lausanne 154, CH-1211 Geneva 21, Switzerland

Journal of Economic Integration, 2023, vol. 38, issue 1, 115-146

Abstract: International financial institutions have advised developing countries to implement a reform of their tax revenue structure to reduce their dependence on international trade tax revenue, for the benefit of domestic tax revenue. This study examines the effect of this type of tax reform on the real exchange rate through the trade openness channel. It defines tax reform (also known as "tax transition reform") as a process that involves the convergence of developing countries' tax structures toward the tax structure of developed countries (given the weak dependence of the latter's tax structure on international trade tax revenue). The analysis is conducted using an unbalanced panel dataset of 107 countries from 1980-2019, and the two-step system-generalized method of moments approach. The findings show that tax reform causes real exchange rate depreciation, with the magnitude of this effect being higher in developed countries than in developing countries. Furthermore, the real exchange rate depreciation effect of the tax reform is higher in countries with greater trade openness and a tax structure that is less dependent on international trade tax revenue.

Keywords: tax transition reform; real exchange rate; trade openness; developing countries (search for similar items in EconPapers)
JEL-codes: F14 H20 O11 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.e-jei.org Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0870

Access Statistics for this article

Journal of Economic Integration is currently edited by Seongeun Kim

More articles in Journal of Economic Integration from Center for Economic Integration, Sejong University Contact information at EDIRC.
Bibliographic data for series maintained by Yunhoe Kim ().