President Trump, left, and first lady Melania Trump, right,

Here’s why developing economies like tariffs

by Ida Bastiaens, Nita Rudra and canada goose factory sale Stacey Williams June 28

canada goose outlet reviews A year ago, the United States and India seemed on better canada goose coats on sale terms. President Trump, left, and first lady Melania Trump, right, walk to Canada Goose sale the Oval buy canada goose jacket cheap Office with Indian Prime Minister Narendra Modi in June 2017. (Win McNamee/Getty Images) canada goose outlet reviews

In uk canada goose outlet a week that saw President Trump tweet against a wide range of Canada Goose online companies and countries, India got its own shout out for high tariffs. goods, including almonds, shrimp and chocolates.

canada goose stockists uk What are the consequences for India of jumping into Trump’s trade war? Most economists assert that increased tariffs are bad for countries because they drive up the cost of goods and reduce efficiency. canada goose stockists uk

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canada goose kensington parka uk The findings of Ida Bastiaens and Nita Rudra’s suggest that some developing countries such as canada goose uk shop India may be especially prone to the temptation of short term revenue that tariffs can bring. The bottom line? Poorer democracies might not find the current trade wars quite so canada goose outlet devastating. Here are four things to know: canada goose kensington parka uk

canada goose uk 1) Globalization makes it harder for developing countries to collect tax revenue canada goose uk

canada goose outlet store new york Poorer canada goose store countries have long relied on trade taxes, especially import tariffs, for government revenue which sometimes account for 20 or 30 percent canadian goose jacket (or more) of revenue such as in India, Jordan and the Philippines canada goose uk black friday in the early 1990s. Tariffs are easy to collect because they involve straightforward monitoring at a centralized border area and don’t require a complex bureaucracy to manage. canada goose outlet store new york

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canada goose outlet trillium parka black But as developing countries join the global Canada Goose Jackets economy, governments have to drastically lower tariffs to enter the WTO and successfully negotiate trade agreements. This tectonic shift leads to a rapid loss of government income or a “revenue shock.” canada goose outlet trillium parka black

canada goose outlet london uk Here’s an illustration: Vietnamese economists in 2015 estimated that joining the Trans Pacific Partnership and Asian Economic Community could mean over $1.9 billion in lost Canada Goose Parka budget canada goose coats revenue, as tariffs come down. canada goose outlet london uk

2) Telling countries to collect taxes differently isn’t an easy fix

canada goose outlet buffalo The solution advocated by the World Bank and IMF is not tariffs and a trade war, but to replace “easy to collect” tariffs with “hard to collect” domestic taxes, such as broadening the income tax base and implementing value added taxes. This isn’t easy to do developing countries do not have the administrative infrastructure, personnel or experience to effectively collect complex domestic taxes. canada goose outlet buffalo

canada goose outlet houston Here’s an example of a value added tax in Andhra Pradesh: Yes, a cow urine tax became a way for one of India’s largest states to replenish government coffers. Cow urine is used in herbal medicines and facial cleansers, and also draws considerable R for its hemotherapeutic potential. The economics of globalization help explain the rise of odd taxes like the one cheap canada goose uk on cow urine which is both inefficient, canada goose black friday sale and canada goose in India, religiously sensitive. canada goose outlet houston

canada goose outlet michigan Yet one of the primary benefits of globalization is that it often leads to a robust private sector, which means that taxing corporations should be a no brainer for offsetting tariff revenue losses. But this is particularly hard in a global economy. canada goose outlet michigan

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canada goose outlet store near me Advanced economies also grapple with these Canada Goose Coats On Sale issues, of course. But it is particularly consequential to the fiscal health of poor countries because they face revenue as low as 10 percent of GDP, on average, in cheap Canada Goose comparison with 40 percent in the advanced industrial nations Underdeveloped tax administrative systems, weak enforcement mechanisms and a limited number of uk canada goose registered taxpayers mean that Canada Goose Online poor nations struggle to raise sufficient revenue for their needs. So, declining revenue from trade, and voter and corporate resistance to higher taxes really matter. canada goose outlet store near me

canada goose outlet ottawa 3) China and India aren’t in the same boat canada goose outlet ottawa

canada goose outlet winnipeg Not all developing nations struggle equally. China, for instance, relies on a strong armed police force to ensure compliance; historically, officials would beat farmers to death over tax payments. More recently, wealthy elites have been executed for tax fraud. This doesn’t mean that individuals or firms never cheat but the risk of heavy punishment is so high that tax evasion is less likely to occur than it does in democracies. canada goose outlet winnipeg

[What is ‘Made in China 2025’ and why is it a threat to Trump’s trade goals?]

canada goose outlet in uk In contrast, democracies have to figure out how to increase tax revenue while contending canada goose clearance sale with unhappy voters. Often, permitting tax avoidance is the easiest path to reelection. One recent estimate suggests that only 3 percent of Indian citizens pay an income tax. canada goose outlet in uk

This is the grand irony on globalization and democracies. Many international economists predicted that globalization would lead to higher revenue because of private sector growth. But citizens of democracies in the developing world suffer when politics constrain their governments’ ability to tax and redistribute especially now with declining tariff revenue under globalization.

4) Retaliatory tariffs do much more harm than good

canada goose outlet ontario For a democratic developing country like India, retaliatory tariffs and highly specific taxes like cow urine may seem like a tempting source of revenue in the short term. But developing country governments are mistaken if they perceive any Canada Goose Outlet revenue potential of recent tariffs in the long run. canada goose outlet ontario

India’s retaliatory tariffs are expected to raise $240 million in revenue, only 0.1 of a percent of revenue collected by the Indian government. Also, buy canada goose jacket this revenue boost could prove

canada goose outlet in toronto The recent tit for tat trade war is only likely to bring further fiscal and macroeconomic problems for India. canada goose outlet in toronto

canada goose parka outlet If India doesn’t want to retreat from globalization and all its benefits, but still needs cash, it will need to focus on enforcing tax rules and implementing smarter policies to get both voters and firms to agree to pay taxes canada goose parka outlet.


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