The trade-off between tax revenues and trade liberalization

Standard theory predicts that, in the long term, trade liberalization leads to an increase in allocative efficiency and hence an increase of fiscal revenues.  This prediction is based on the idea that overall economic surplus determines the size of the tax base and an improvement in allocative efficiency increases surplus.  Given this attractive feature of trade liberalization, especially from a fiscal standpoint, it is puzzling that developing countries remain relatively protectionist.  A new branch of the literature has begun to shed light on this issue.

The empirical evidence shows that trade taxes in low-to-middle income countries, and particularly low-income countries (LICs), account for a significant share of their fiscal revenue.  For example, in Sub-Saharan Africa trade taxes account for an average of about one quarter of all government revenues and in the developing countries of Asia and the Pacific they account for around 15 percent.  In contrast, high-income countries depend more on domestic income taxes and for many of them the share of revenues from trade taxes is very small.  It is argued that developing countries’ dependence on revenues from trade taxes might itself account for their failure to liberalize further.  The problem appears to be that many developing countries do not have the domestic fiscal capacity to increase domestic taxation.  That is, the machinery of domestic tax collection does not exist within the country.  If within a country different social groups with conflicting interests cannot agree on investing in fiscal capacity, then domestic taxation fails to develop and the country remains reliant on trade taxation.

Consistent with this perspective, the empirical evidence shows that after trade liberalization episodes, developing countries typically take a long time to replace trade tax revenue losses with domestic tax revenue gains.  A significant number of LICs never manage to replace the revenues that were lost to trade liberalization. A political economy approach has been developed to understand this paradox. Research shows that the governments of powerful countries sometimes succeed in influencing the trade policies of their less powerful developing country trade partners. This could lead them to decrease taxes on trade ‘too early’ from a fiscal perspective, i.e. before they are in a position to increase revenues from domestic sources of taxation.

One line of research suggests that structural changes associated with the process of development of the domestic economy could in turn facilitate trade liberalization, rather than the reverse prediction of standard theory.  Through structural change the cost of monitoring and enforcing income taxes decreases, the domestic tax base expands and allows the government to rely less on (inefficient) trade taxes, which could in principle lead to more liberalization in the future.

Antràs, Pol  and Gerard Padró i Miquel (2011) “Foreign Influence and Welfare,” Journal of International Economics, 84: 135–148.

Besley, Timothy and Torsten Persson (2011) Pillars of Prosperity: The Political Economics of Development Clusters. Princeton University Press.

Besley, Timothy and Torsten Persson (2014) “Why do developing countries tax so little?” Journal of Economic Perspectives, 28(4): 99-120.

Baunsgaard, Thomas and Michael Keen (2010) “Tax Revenue and (or?) Trade Liberalization,” Journal of Public Economics, 94(9-10): 563 – 577 [working paper]

Cagé, Julia and Lucie Gadenne (2014) “Tax Revenues, Development, and the Fiscal Cost of Trade Liberalization, 1792-2006“, Working Paper

Dixit, Avinash (1985) “Tax policy in open economies,” in Handbook of Public Economics, ed. by A. J. Auerbach, and M. Feldstein, vol. 1 of Handbook of Public Economics, chap. 6, pp. 313–374. Elsevier.

Riezman, Raymond, and Joel B. Slemrod (1987): “Tariffs and Collection Costs,” Review of World Economics, 23(2): 209–287.

Welcome New Members – August 2016

We would like to welcome the following new members of the InsTED network:

Prof. Marco Bonomo (Insper Institute of Education and Research) His research interests are in macroeconomics and asset pricing.

Prof. Sarah B. Danzman (Indiana University Bloomington) Her primary field of interest is the political economy of international investment and finance.

Prof. Stephen Yeaple (Penn State University) His areas of interest are international trade, industrial Organization, and applied microeconomics.


New Working Papers August 2016

The following working papers have recently been added to our working papers page:

Dasgupta, Aditya, Kishore Gawande and Devesh Kapur (2016) “(When) Do Anti-Poverty Programs Reduce Violence? India’s Rural Employment Guarantee and Maoist Conflict

Dix-Carneiro, Rafael and Brian K. Kovak (2016) “Trade Liberalization and Regional Dynamics

Méon, Pierre-Guillaume and Ilan Tojerow (2016) “In God We Learn? Religions’ Universal Messages, Context-Specific Effects, and Minority Status


Call For Papers – Asian Development Bank Conference on Economic Development (ACED): Entrepreneurship, Firm Dynamics, and New Technologies

January 9-10, 2017, Manila

Organized by the Economic Research and Regional Cooperation Department of the Asian Development Bank (ADB), the ADB Conference on Economic Development (ACED), aims to promote the exchange of new research and ideas among researchers, policymakers, and development practitioners on significant and emerging topics in economic development.

The theme of the next ACED conference will be “Entrepreneurship, Firm Dynamics, and New Technologies”. Confirmed presenters include: Chang-Tai Hsieh (University of Chicago); Mark Roberts (Penn State), Christopher Woodruff (University of Warwick), and Daniel Xu (Duke University).

TOPICS: We invite submissions of unpublished papers on the following suggested topics, especially as they relate to economies in Asia. Submissions that examine the empirical or theoretical links between entrepreneurship, the adoption and diffusion of digital technologies, and firm management and performance based on experiences from Asian economies will be of particular interest:
– Effects of new technologies (e.g. digital) on firm organization and performance
– Evaluation of policies (e.g. trade tariffs on computers/hardware, licensing, infrastructure investments) that alter diffusion of technologies and its effects on firms
– Usage of new technologies in firm operations
– Micro-level analysis of technology diffusion (including adoption and spillovers)
– Ownership and innovation protection in the digital age
– Evaluation of policies for promoting entrepreneurship and firm dynamism

PAPER SUBMISSION PROCEDURE: Interested authors should submit a draft paper or a two-page proposal by 15 September 2016 to Mr. Yi Jiang and Ms. Glennie Amoranto (email:; with ACED2017_Submission_[your last name]” in the email’s subject line. The proposal should include the title of the paper, author(s), affiliation, and contact information, and should address the main question(s) to be examined, relevant literature, unique contribution to the literature, and methodology to be employed.

Proposals will be evaluated in terms of originality, analytical rigor, and policy relevance in the Asian context. Authors of accepted proposals will be contacted by October 15, 2016. ADB will cover registration, flight and hotel costs for one presenter of every accepted paper.

PhD Positions in Innovation Economics

  • Centre of Transformative Innovation
  • $26,300 ($AUS) annual stipend
  • 3 year scholarship based at the Hawthorn campus

In recent years, Swinburne has progressed to become one of the world’s leading universities, ranking as one of the top 400 universities in the world, as assessed by the Academic Ranking of World Universities, and one of the top 75 in the world in physics.

The PhD candidates are expected to develop their own independent research agenda focused on issues related to the economics of innovation under the supervision of Professor Elizabeth Webster, Associate Professor Alfons Palangkaraya and/or Associate Professor Russell Thomson.
Some prospective topics or themes for the PhD candidates to focus on might include the following questions:

  • How has global intellectual property system influenced international trade and the globalisation R&D activities?
  • How do networks of inventors and scientists collaborate to generate radical scientific breakthroughs?
  • What can governments do to foster science, innovation and technological upgrading?

The scholarships would be with the Centre of Transformative Innovation (CTI) at Faculty of Business and Law, Swinburne University of Technology. Swinburne is fast becoming a world leading research university. In fewer than 25 years Swinburne University of Technology has achieved a place in the top 400 universities in the world.

CTI is the largest interdisciplinary academic research body on innovation in Australia which studies knowledge; how it accumulates and how it can be used to benefit all. Economists in the Centre for Transformative Innovation are globally recognised in economics of technology, innovation and intellectual property and have published in prestigious international journals including RAND, Review of Economics and Statistics, Journal of Law and Economics, Research Policy and American Journal of Agricultural Economics and others.

The hallmark of our Centre is the dedication to using data to explore what works; what is important and what is not. PhD candidates will be provided with excellent research support from Centre’s data scientists and collection of databases including:

  • Web of Science (WoS) database of 90 million records and 800 million citations. Swinburne is the only University with access to this data and one of fewer than a dozen worldwide.
  • Global intellectual protection application database including patent and trademark.
  • Access to unpublished population data of Australian businesses.
  • Australian government program recipient database.

Opportunities for international research visits and collaboration
PhD students at CTI are encouraged to take opportunities for mid-candidature exchange and research development to leading universities in the field including Hebrew University Jerusalem, Israel; KU Leuven Belgium; and, the École polytechnique fédérale de Lausanne, Switzerland. Such exchange helps students develop skills and international networks for success as an academic economist, in leading global consulting or at the highest levels of policy development.

Amount awarded
The scholarship provides a stipend of AUD 26,300 per year, is tenable for one year in the first instance, and may be renewed annually for a further two years and in special circumstances up to one additional year subject to satisfactory performance review. There is also an additional scholarship top up per year (up to AUD 10,000) subject to performance review.
The scholarship comes with waiver of any tuition fees payable.

Skills and Experience
The successful candidates would be expected to have a completed Master’s degree in economics or first-class honours undergraduate degree with knowledge in microeconomics and applied econometrics at an advanced Master’s level. Candidates should be highly motivated to conduct independent research, and are should be fluent in English. Applications are open to domestic and international students.
A full list of the selection criteria is available in the position description

The diverse culture within Swinburne is a source of strength. We have an inclusive working environment with employees from a variety of backgrounds. We acknowledge that diversity in the university workforce increases the effectiveness of teams and our capacity for innovation. We welcome applications from Indigenous people, workers of all ages, people with disabilities, people who identify as LGBTIQ and those from culturally and linguistically diverse backgrounds.

We are proud to be recognised by the Workplace Gender Equality Agency as an Employer of Choice for Gender Equality 2015 and of key initiatives such as our Pride@Swinburne Strategic Action Plan and our Reconciliation Action Plan which are integral components of our 2020 vision to be Australia’s leading university of science, technology and innovation.

How to apply
Please send your electronic application in a single PDF file containing:

  • A one-page cover letter summarising your academic background, research interests, and motivation for applying.
  • A detailed curriculum vita, including the names and addresses of two references.
  • A one-page research proposal.
  • Degree certificates and grade transcripts (incl. grades for each course)
  • GMAT or GRE scores if available
  • TOEFL/IELTS scores if from non-English speaking countries or if previous degree qualifications are not from institutions in English speaking countries.

Short listed candidates will be asked to provide reference letters.
Please do not email or send paper applications, all applications must be submitted online.

For further information, please contact Associate Professor Alfons Palangkaraya on +61 3 9214 5826 or .

If you are experiencing technical difficulties submitting your application, please contact the Recruitment team on +61 3 9214 8600 (option 2).

Refer to position number: PHDSCHOL
Applications close: 5pm on 5 September 2016


Faculty of Management and Economics, Department of Economics

Is recruiting:

Three professor positions

Hiring requirements: · PHD IN ECONOMICS OR GEOGRAPHY. · KNOWLEDGE AND EXPERIENCE IN THE FOLLOWING AREAS: – Regional economics, economic geography, urban economics, natural resources economics and economic development. – Medium to high level in Spanish language. The applicants must 1) contribute to undergraduate and graduate-level teaching; 2) be able to develop and maintain an externally funded research program; 3) be able to contribute to the department’s interdisciplinary mission with publications; 4) Support the Department management activities.

Selection process

It is expected that the candidate will be available to start working in January, 1st 2017. Applications must be sent to and including the following information: 1) a full curriculum vitae, 2) a doctoral degree closely related to the fields above described at the time of appointment, 3) letter of application describing research and teaching interests, 4) samples of working papers or publications and 5) the names and contact details of two referees plus the recommendation letter. Pre-selected candidates will have an interview with the university Academic Commission and a Psychologist. Salary will be stablished according the Universidad Católica del Norte standards taking into account CV. Applications will be accepted until, November, 1st, 2016. Universidad Católica del Norte reserves its right to declare void the positions without explaining the causes. Any question about the application process must be sent to Miguel Atienza, Tel. 56 55 2355790 Avda. Angamos 0610 Antofagasta.

URL for Online Application:


Associate or Full Professor in Economic Development/Int’l Economics/Int’l Nongoverment Organizations Texas A&M University – College Station

The Department of International Affairs in the Bush School of Government and Public Service at Texas A&M University invites applications and nominations for an associate or full professor position in the field of economic development or international economics. Additional work experience in, or research focus on, International non-governmental organizations or non-profits is preferred. The successful applicant will teach a section of the department’s required course Fundamentals of the Global Economy and other courses developed in consultation with the department, including at least one course that supports the International Nongovernmental Organization concentration (e.g. microfinance, aid delivery, health). Applicants must have a Ph.D. in Economics, Political Science, or a related discipline and an established record of scholarship. The individual selected will have demonstrated a strong commitment to teaching and research in the context of a public policy graduate school environment. Applicants should send a formal letter of interest that includes reference to the relevant position, a curriculum vitae, three letters of recommendation, and a sample of written work to:

Professor Gregory Gause
c/o Ms. Janeen Wood (preferably as electronic attachments to
The Bush School of Government & Public Service
Texas A&M University
4220 TAMU
College Station, TX 77843-4220

CALL FOR PAPERS: Italian Trade Study Group (ITSG)

Lucca (Italy), 27-28 October 2016

The next meeting of the Italian Trade Study Group (ITSG) will take place in Lucca (Italy) on 27-28 October 2016, organized by the IMT School for Advanced Studies, in collaboration with Fondazione Manlio Masi. 
Since 1998, ITSG organizes periodical meetings of researchers and experts to discuss most relevant topics of international economics. This year, submissions are invited in all topics of international trade. However, works on the organization of ‘Global Production Networks’ and on ‘Microfoundations of Aggregate Fluctuations’ will be particularly welcome. Among topics of special interest, we will consider:
• Firms, industries, countries, and the organization of Global Production Networks 
• Knowledge diffusion in Global Innovation Networks 
• Heterogeneous firms, Granularity and Aggregate Fluctuations 
• Value Chains and Supply Chains 
• Geography of Production, and Agglomeration 
• Trade policy implications of Global Value Chains and Production Networks 
Keynote speaker: Julian di Giovanni (Universitat Pompeu Fabra). 
Complete papers (or advanced drafts) should be submitted to Segreteria Fondazione Masi – – by September 15. The acceptance of the papers will be notified no later than October 1
The Scientific Committee for this meeting includes: Gabor Békés (HAS-CEU), Italo Colantone (Bocconi), Rosario Crinò (Cattolica), Giorgia Giovannetti (University of Florence), Roberta Rabellotti (Università di Pavia), Armando Rungi (IMT Lucca), Lucia Tajoli (Politecnico Milano), Gianluca Santoni (CEPII). 
Local organizer: Armando Rungi (IMT Lucca)
For further information, please visit the event page:
Or contact: