Effects of Tariff Reduction and Tax Replacements on Growth, Poverty And Income Distribution in Ethiopia: A CGE-Microsimulation Analysis
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Date
2011-06
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Addis Ababa University
Abstract
This study utilizes a 15-sector static CGE model of International Food Policy Research Institute
for Ethiopian economy. The study also used the Distributive Analysis (DAD) software to compute
poverty and inequality indicators. Increasing domestic tax rates (that is, replacing the tariff
revenue lost with either direct tax or indirect tax) increased exports of most agricultural
commodities and industrial imports causing the domestic industries to contract in production and
employment. Effects on GDP, consumer’s welfare, factor rewards, poverty and income
distribution are mixed. Replacing tariff by direct tax improved all these variables marginally by
increasing changes in factor rewards and decreasing the price level (CPI). On the other hand,
replacing tariff by indirect tax has worsening effect by deteriorating the changes in factor
rewards and increasing the relative prices (CPI).
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Keywords
Applied Trade Policy Analysis, Trade Policy Analysis, Food Policy Research