Revenue Implications of Trade Liberalization in South Africa

Abstract

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