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GTAP Resource #1999

"The Poverty Impacts of the Doha Round in Cameroon: The Role of Tax Policy"
by Emini, Christian Arnault, John Cockburn and Bernard Decaluwe

This chapter assesses the possible impacts of the Doha Round on poverty in Cameroon. During the recent period of economic recovery, Cameroon has enjoyed a sharp decline in poverty, with the headcount index falling from 53.3 percent of inhabitants in 1996 to 40.2 percent in 2001, mostly thanks to economic growth rather than redistribution. Will the current trade negotiations under the Doha Round reinforce or curb this trend? The chapter applies a computable general equilibrium (CGE) microsimulation (MS) model that involves 10,992 households to address this question.

The Doha Round is found to be poverty reducing for Cameroon. For the whole country, the estimate of net number of people who are lifted out of poverty is 22,000, according to this scenario. Further investigations indicate that more ambitious world trade liberalization leads to greater poverty alleviation at the national level, and Cameroon’s domestic trade liberalization has adverse poverty and inequality impacts, despite giving rise to higher aggregate welfare. Under the Doha scenario, the cuts in Cameroon’s tariffs are very small (the average tariff rate moves from 11.79 percent in the base run to merely 11.66 percent), so that liberalization effects in the rest of the world (ROW) on world prices more than offset the adverse own-liberalization effects in this scenario. If full trade liberalizations in ROW and Cameroon are combined, the adverse impacts of own-liberalization outweigh the favorable outcomes of the ROW liberalization.

The results in this chapter suggest furthermore that the choice of tax replacement instrument can have an important bias in poverty impacts: poverty gets worse in this country case study when an imperfect VAT is used instead of a neutral replacement tax to compensate lost tariff revenue, and it gets even worse when a consumption tax is used. Key reasons here are the supplementary distortions, which are nil in the case of a neutral tax and greatest in the case of a consumption tax. Finally, beyond the Doha scenarios that are the focus of this study, the poverty-worsening impacts of own-liberalization depicted here raise concerns for Cameroon. In particular, they suggest that accompanying measures should be considered to avoid poverty increases in the framework of Economic Partnership Agreements (EPAs) currently in negotiation between the African, Caribbean, and Pacific Group of States (ACP) and the EU, which propose a drastic dismantlement of ACP tariffs over the next few years.

Resource Details (Export Citation) GTAP Keywords
Category: 2006 Conference Paper
Status: Published
By/In: Presented at the 9th Annual Conference on Global Economic Analysis, Addis Ababa, Ethiopia
Date: 2005
Version: wps3746
Created: Emini, C. (4/28/2006)
Updated: Emini, C. (4/28/2006)
Visits: 3,348
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