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WTO membership and the shift to consumption taxes

Author

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  • Buettner, Thiess
  • Madzharova, Boryana
Abstract
This paper explores tax policy effects and revenue implications of joining the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT). It documents that countries joining GATT/WTO after 1990 have implemented tariff-cum-tax reforms, lowering tariff rates and raising consumption tax rates, in particular through reform or introduction of a value added tax (VAT). Employing a panel of 97 developing and transitional countries, 31 of which joined GATT/WTO between 1990 and 2011, using robust difference-in-difference specifications as well as the synthetic control method, we find a statistically and economically significant decline in revenues from import duties. This finding supports concerns about revenue losses, but also corroborates the efficacy of the late Uruguay GATT and the WTO trade regimes in promoting free trade among new members. Regarding consumption taxes, we find robust evidence that revenue substitution was successful, since revenue losses from import duties were more than compensated for by enhanced revenues from consumption taxes. With regard to the timing of the revenue effects, our results show that revenue losses in import duties mostly take place at the time of membership or later. Changes in consumption taxation, however, exhibit pre-membership effects, as revenues are increased, and VAT is adopted, often a few years ahead of losses in import duties. No such effects are found before the start of the accession negotiations, indicating that consumption tax reforms are initiated once a country is on the road to GATT/WTO membership.

Suggested Citation

  • Buettner, Thiess & Madzharova, Boryana, 2018. "WTO membership and the shift to consumption taxes," World Development, Elsevier, vol. 108(C), pages 197-218.
    • Handle: RePEc:eee:wdevel:v:108:y:2018:i:c:p:197-218
    DOI: 10.1016/j.worlddev.2018.02.020
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    1. Vicky Chemutai & Hubert Escaith, 2017. "Measuring World Trade Organization (WTO) Accession Commitments and their Economic Effects," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 1-27, June.
    2. Priyaranjan Jha & Rahul Mukherjee, 2023. "Global Taxation and National Welfare States," CESifo Working Paper Series 10522, CESifo.
    3. Gnangnon, Sèna Kimm, 2021. "WTO membership, the membership duration and the utilization of non-reciprocal trade preferences offered by the QUAD Countries," EconStor Preprints 247265, ZBW - Leibniz Information Centre for Economics.
    4. Gnangnon, Sèna Kimm, 2023. "Duration of membership in the world trade organization and investment-oriented remittances inflows," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 258-277.
    5. Celine de Quatrebarbes & Bertrand Laporte & Stéphane Calipel, 2021. "Fighting the soaring prices of agricultural food products. VAT versus Trade tariffs exemptions in a context of imperfect competition in Niger : CGE and micro-simulation approach," CERDI Working papers hal-03138369, HAL.
    6. Bachas,Pierre Jean & Fisher-Post,Matthew & Jensen,Anders & Zucman,Gabriel, 2022. "Globalization and Factor Income Taxation," Policy Research Working Paper Series 9973, The World Bank.
    7. Absher, Samuel & Grier, Kevin & Grier, Robin, 2020. "The economic consequences of durable left-populist regimes in Latin America," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 787-817.
    8. Gnangnon, Sèna Kimm, 2022. "Duration of WTO Membership and Investment-Oriented Remittances Flows," EconStor Preprints 251274, ZBW - Leibniz Information Centre for Economics.
    9. Gnangnon, Sèna Kimm, 2022. "Effect of Aid for Trade flows on the Accession to the World Trade Organization," EconStor Preprints 261331, ZBW - Leibniz Information Centre for Economics.
    10. Youssef Benzarti & Alisa Tazhitdinova, 2021. "Do Value-Added Taxes Affect International Trade Flows? Evidence from 30 Years of Tax Reforms," American Economic Journal: Economic Policy, American Economic Association, vol. 13(4), pages 469-489, November.
    11. Céline de Quatrebarbes & Bertrand Laporte & Stéphane Calipel, 2021. "Fighting the soaring prices of agricultural food products -VAT versus Trade tariffs exemptions. A case study in Niger," Working Papers hal-03164636, HAL.

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    More about this item

    Keywords

    Trade liberalization; Tax reform; Value added tax; GATT; WTO; Anticipation effects; Synthetic control method;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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