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Tax revenues and the fiscal cost of trade liberalization, 1792-2006

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Cagé, Julia and Gadenne, Lucie (2018) Tax revenues and the fiscal cost of trade liberalization, 1792-2006. Explorations in Economic History, 70 . pp. 1-24. doi:10.1016/j.eeh.2018.07.004

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Official URL: http://dx.doi.org/10.1016/j.eeh.2018.07.004

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Abstract

This article examines the impact of trade liberalization on government revenues. Using a new dataset on tax revenues for 130 countries between 1792 and 2006, we identify ninety-nine episodes of trade liberalization defined as a large fall in trade tax revenues not accompanied by a decrease in trade. Seven took place before World War One, seven in the interwar period, eighteen in the Bretton Woods period and the remainder after 1970. We examine the extent to which countries were able to recover the tax revenues lost by liberalizing trade by using other sources of revenue. We find that historical (pre-1970) trade liberalization episodes were unlikely to be accompanied by decreases in tax revenues, especially during the Bretton Woods era. In the recent period however, over 40% of the developing countries in our sample experience a fall in total tax revenues that lasts more than ten years after an episode of trade liberalization. Overall, trade liberalization led to larger and longer-lived declines in tax revenues in developing countries since 1970 than in today’s rich countries in the 19th and 20th centuries. Results are similar when we consider government expenditures, suggesting decreases in trade tax revenues negatively affect governments’ capacity to provide public services in many developing countries.

Item Type: Journal Article
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HJ Public Finance
Divisions: Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH): Taxation -- History -- 18th century, Taxation -- History -- 19th century, Taxation -- History -- 20th century, Free trade -- History -- 18th century, Free trade -- History -- 19th century, Free trade -- History -- 20th century
Journal or Publication Title: Explorations in Economic History
Publisher: Elsevier
ISSN: 0014-4983
Official Date: October 2018
Dates:
DateEvent
October 2018Published
2 August 2018Available
23 July 2018Accepted
Volume: 70
Page Range: pp. 1-24
DOI: 10.1016/j.eeh.2018.07.004
Institution: University of Warwick
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access

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