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Published byMarkku Kapulainen Modified over 6 years ago
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GTAP Model: FTA, Foreign Transfers and Tax Policy
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Motivation Trade liberalization entails revenue shortfalls.
Compensation could come from Tax Replacement Foreign Transfers Questions: Are tax replacement and foreign inflows the same? Do they have similar implications?
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Modeling Aid Inflows and Taxes
The three scenarios under the EU-Morocco FTA Case 1: Fiscal deficit with no tax compensation. tp exogenous and swapped with del_ttaxr Case 2: Tax replacement compensating tariff revenue shortfall and zero-fiscal deficit. - Prof. Hertel’s model Case 3: Transfers to Morocco that compensate for tariff revenue shortfall of $1.4 bn. Shock incomelack for Morocco (4.2%), for EU (-0.02%) and ROW (0%). Walras condition is satisfied.
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Aid is accompanied with a loss of competitiveness.....
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which in turn encourages imports at the expense of exports.....
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But... what about domestic production?
.....In this model, transfers discourage production....
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Consumption absorbed the transfers.....
And generated some inflationary pressure.....
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Summing up Tax replacement and foreign inflows yield to different outcomes. Foreign inflows translated into Consumption boost Output decline Loss of competitiveness And mild inflation But.... Welfare increased!!!!!!!
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