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The Macroeconomics of Policy Reform: Experiments with a CGE Model of Bangladesh

Jeffrey D Lewis
The Bangladesh Development Studies
Vol. 18, No. 1 (March 1990), pp. 1-35
Stable URL: http://www.jstor.org/stable/40795369
Page Count: 35
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
The Macroeconomics of Policy Reform: Experiments with a CGE Model of Bangladesh
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Abstract

At the heart of trade and industriell policy reform in developing countries are efforts to pinpoint, quantify, and then eliminate the distortions and inefficiencies that characterize tariff and tax structures. Sometimes overlooked, however, is the fact that such policy reforms have macroeconomic implications too: changes in tariff rates, for example, affect both government revenue and import demand. This paper develops a general equilibrium model of the Bangladesh economy in order to examine the macroeconomic and intersectoral consequences of proposed trade and industrial policy reforms in Bangladesh. We find that the proposed tariff reform, which would lower tariffs on industrial products to around 20-30 per cent, would result in a decline in tariff revenues, and therefore reduce total government resources, although moderate increases in excise taxes would be sufficient to recover much of the revenue lost. Replacing the current off-budget export subsidy, based on retention of foreign exchange earnings, by export subsidies financed out of the government budget would promote exports; furthermore, it would have little detrimental fiscal impact, since higher exports would yield increased corporate tax revenue, while also permitting more imports, and thus higher tariff revenues.

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