Trade Liberalization and Trade Tax Revenues in African Countries

Abstract

We empirically investigate the e®ect of trade liberalization on trade tax revenues applying panel-data methods to a large sample of African countries from the period 1970-2000. The goal of this paper is to determine whether controlling for macroeconomic features of African economies and taking into account the existence of political constraints that might either support or weaken the power of the trade reform, a change in trade policy has a positive or negative e®ect on trade tax revenues. We ̄nd that there exists a large trade o® between a greater degree of openness to international trade and the revenue collected from import and export taxation. We document the existence of a La®er ef- fect between trade openness and trade tax revenues and stress the impor- tance of exchange rate policies along with the stability of the macroeco- nomic environment in determining trade reform outcomes. Interestingly, we also provide evidence of the relevance of government credibility in explaining trade tax revenues

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