Revenue implications of trade liberalization in South Africa

Abstract

This paper explores the implications of trade liberalization on international trade tax revenue and the macroeconomic implications thereof in the context of the South African economy. The main focus of the paper is on quantitative restrictions in the form of tariffs. In theory the direction of change of revenue as a result of trade reform is ambiguous, depending among other factors on the productivity of trade tax revenue. With these in mind, the paper first establishes the productivity of trade tax revenue in South Africa. This is followed by an econometric analysis of the relationship between tariff revenue and trade liberalization in South Africa. Customs revenue is used as a measure of trade tax revenue. The estimation results show that customs revenue is highly productive. In addition, trade liberalization has a significant influence on customs revenue and that an increase in imports may lead to a reduction in trade tax revenue. On the other hand the results suggest that supportive macroeconomic policies are a prerequisite for successful trade liberalization.