Politically Optimal Tariffs : AnApplication to Egypt

Madani, Dorsati ; Olarreaga, Marcelo

World Bank, Washington, DC

关键词: OPTIMAL TAXATION;    TRADE LIBERALIZATION;    TARIFF AGREEMENTS;    TARIFF POLICY;    TARIFF STRUCTURES;   

DOI  :  10.1596/1813-9450-2882
RP-ID  :  WPS2882

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Egyptian economic history has beeninfluenced by the import-substitution industrializationapproach to development, dating back to Gamal AbdelNasser's Pan-Arabic and socialist movement in the1950s. Two major waves of liberalization have marked thegovernment's efforts to rationalize and modernize theeconomy-the Infitah (opening) promoted by Anwar Sadat in the1980s, and further trade and privatization efforts by HosniMubarak in the 1990s. Nonetheless, the extent of tradeliberalization does not compare well with similar countries.Despite a decade of liberalization, the trade regime ischaracterized by deliberate and gradual reforms. By 1999these reforms had led to average tariffs close to 30percent, with high dispersion and escalation, well abovethose in comparable countries. provide a political economyanalysis of the difficulties of liberalizing tariffs inEgypt in general, and in its specific industries. Theypresent the theoretical and empirical models and discuss theresults. The authors also explore the potential effects ofthe Euro-Med agreement for Egypt The authors provide apolitical economy analysis of the difficulties ofliberalizing tariffs in Egypt in general, and in itsspecific industries. They present the theoretical andempirical models and discuss the results. The authors alsoexplore the potential effects of the Euro-Med agreement forEgypt. The political economy analysis of the Egyptian tariffstructure identifies two sets of highly protected sectors.Overprotected industries are defined as those with actualtariffs at least 25 percent higher than what is predicted bythe political economy variables. The political determinantscan be divided into two groups: the lobbying andcounter-lobbying forces. First, the lobbying strength ofspecific capital in each sector is proxied by the degree ofindustry concentration, the labor-capital ratio, and theimport penetration ratio. Second, counter-lobbying in factoror input markets is proxied by wage level, degree ofprocessing in the industry, and degree of intra-industrytrade. Using this methodology, the authors identify two setsof products: six products where tariff cuts will not bepolitically costly, and six where it will be politicallycostly, In both cases, lowering tariffs will improveresource allocation and efficiency in the industriesinvolved. The prospects of a free trade area with Europeshould also help reduce tariffs in sectors where a highshare of production is exported or imported from Europe. Ifproducts are exported to Europe, the potential free accessto the European market should more than compensate for anytariff reductions in the local market. On the other hand, ifproducts are heavily imported from Europe, the preferentialaccess for European exporters will tend to significantlyincrease their presence in the Egyptian market. This in turnwill reduce the "protective" aspect of externaltariffs in sectors with large import penetration ascompetition will be coming from Europe. The EU-Egyptagreement includes a lengthy (19 years) structure of tariffreduction. This structure will lead to increased effectiverates of protection for the first eight years of itsimplementation, added economic distortions, and inefficientuse of resources. The Egyptian authorities may want toconsider speeding up the Euro-Med schedule of liberalizationto mitigate an increase in effective rates of protection.Furthermore, special effort should be made to reduceexternal tariffs on semi-processed and processed goods toattenuate the expected negative effects of the rise ineffective rates of protection. More generally, to preventthe high potential for trade diversion associated withEgypt's high tariffs, a simultaneous reduction inEgypt's external tariffs should accompany the EU-Egypt agreement.