Working Paper: CEPR ID: DP6729
Authors: Paul Collier; Anthony J. Venables
Abstract: Where imports are financed predominantly by rents from resource extraction or aid, the revenue generated by tariffs is illusory. Revenue earned by the tariff is offset by a reduction in the real value of aid and resource rents. Revenue is however moved between accounts in the government budget, which, in the case of aid, may reduce the burden of donor conditionality. We demonstrate this proposition and its qualifications analytically and by simulating the effects of tariffs on revenue, real income, and export diversification for a range of cases. Whereas countries in which tariff revenue is illusory should adopt more liberal trade regimes, we show that currently there is no such tendency.
Keywords: aid; import tariffs; natural resources
JEL Codes: F1; F35; Q3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tariffs (F13) | nominal revenue (H27) |
| tariffs (F13) | real value of resource rents (Q31) |
| tariffs (F13) | real value of aid (F35) |
| real value of resource rents + real value of aid (F35) | actual revenues (H27) |
| tariffs (F13) | actual revenues (H27) |
| tariffs (F13) | aggregate real income (E10) |
| tariffs (F13) | export diversification (F29) |
| political motivations (D72) | maintaining tariffs (F13) |
| maintaining tariffs (F13) | converting aid flows into unrestricted revenue streams (F35) |