Impact of Trade liberalization on the Government Tax Revenue of Ethiopia by Reducing the Tariff Rate: Using a Simple Computable General Equilibrium Model
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Date
2008-07
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Addis Ababa University
Abstract
1999 was the time the military regime relinquished political power and the new government took over the power. The new government initiated a wide range of reform programme some of which are directly related to trade liberalization. In this paper a two-sector, three-goods simple Computable general Equilibrium (1-2-3 CGE) model, developed by S.Devarajan et.al. at the World Bank was used to analyze the impact of trade liberalization that is the reduction of the tariff rate in three scenarion on government tax revenue and saving of Ethiopia. Moreover, it examines the coordination of domestic tax and trade tax with out affecting the total tax revenue of the country using the 1-2-3 CGE model. The simulation result of the model when reducing tariff rate is an overall decline of the government tax revenue and government saving of the country in the three different scenarios. Furthermore, by increasing domestic tax it possible compensate the loss from tariff reduction with out affecting the total government tax revenue. Keywords: Trade liberalization, Simple Computable General Equilibrium (1-2-3CGE) Model, Government tax revenue and tariff reduction.
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Trade liberalization, Simple Computable General Equilibrium, (1-2-3CGE) Model, Government tax revenue and tariff reduction