International Tax and Public Finance

, Volume 12, Issue 6, pp 723–739 | Cite as

Commercial Policy Reform in Pakistan: Opening up the Economy under Revenue Constraints

  • Sajal Lahiri
  • Anjum Nasim


We examine the potential for further reform of sales tax and tariffs on final goods and on intermediate inputs in Pakistan. Analysis is conducted at two levels. First, optimal taxes are computed under the assumption that tax revenue is exogenous and pays for a public good, and these are compared with their current levels. Second, we consider two piecemeal reform exercises to examine whether there is further scope for replacing the two tariffs by sales tax in a revenue-neutral way. Both approaches suggest that there is considerable scope for further reducing tariffs on final goods, but not on intermediate inputs.


VAT tariffs government revenue Pakistan 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Abe, K. (1992). “Tariff Reform in a Small Open Economy with Public Production,” International Economic Review 33, 209–222.Google Scholar
  2. Ahmad, E., S. Ludlow and N. Stern. (1988). “Demand Response in Pakistan: A Modification of the Linear Expenditure System for 1976,” The Pakistan Development Review 27, 293–307.Google Scholar
  3. Ahmad, E. and N. Stern. (1991). The Theory and Practice of Tax Reform in Developing Countries. Cambridge: Cambridge University Press.Google Scholar
  4. Ballard, C., J. Shoven and J. Whalley. (1985). “General Equilibrium Computations of the Marginal Welfare Cost of Taxes in the United States,” American Economic Review 75, 128–138.Google Scholar
  5. Baumol, W. J. and D. F. Bradford. (1970). “Optimal Departures from Marginal Cost Pricing,” The American Economic Review 60, 265–283.Google Scholar
  6. Buffie, E. F. (2001). Trade Policy in Developing Countries. Cambridge University Press.Google Scholar
  7. Dixit, A. K. and V. Norman. (1980). Theory of International Trade. Welwyn: Nisbet.Google Scholar
  8. Fullerton, D. (1991). “Reconciling Recent Estimates of the Marginal Welfare Cost of Taxation,” American Economic Review 82, 302–308.Google Scholar
  9. Goldstein, M. and M. S. Khan. (1985). “Income and Price Effects in Foreign Trade.” In P.B. Kennen and R.W. Jones (eds.), Handbook of International Economics, Amsterdam: North-Holland, pp. 1041–1105.Google Scholar
  10. Government of Pakistan. CBR Year Book (various issues). Islamabad: Central Board of Revenue.Google Scholar
  11. Government of Pakistan. Economic Survey (various issues). Islamabad: Finance Division.Google Scholar
  12. Government of Pakistan. 50 Years of Pakistan in Statistics. Islamabad: Federal Bureau of Statistics.Google Scholar
  13. Government of Pakistan. Pakistan Statistical Yearbook 2001. Islamabad: Federal Bureau of Statistics.Google Scholar
  14. Keen, M. and S. Lahiri. (1998). “The Comparison Between Destination and Origin Principles under Imperfect Competition,” Journal of International Economics 45, 323–350.CrossRefGoogle Scholar
  15. Keen, M. and J. E. Ligthart. (2002). “Coordinating Tariff Reduction and Domestic Tax Reform,” Journal of International Economics 56, 489–507.CrossRefGoogle Scholar
  16. Krishna, P. and A. Panagariya. (1997). “A Unification of the Theory of Second Best,” Working Paper No. 31, Center for International Economics, Department of Economics, University of Maryland.Google Scholar
  17. Lahiri, S., A. Nasim and J. Ghani. (2000). “Optimal Second-Best Tariffs on an Intermediate Input with Particular Reference to Pakistan,” Journal of Development Economics 61, 393–416.CrossRefGoogle Scholar
  18. Lahiri, S. and P. Raimondos. (1996). “Correcting Trade Distortions in a Small Open Economy,” Review of International Economics 4, 287–299.Google Scholar
  19. LLoyd, P. J. (1974). “A More General Theory of Price Distortions in Open Economies,” Journal of International Economics 4, 365–386.CrossRefGoogle Scholar
  20. López, R. and A. Panagariya. (1992). “On the Theory of Piecemeal Tariff Reform: The Case of Pure Imported Intermediate Inputs,” American Economic Review 82, 615–625.Google Scholar
  21. López, R. and D. Rodrik. (1990). “Trade Restrictions with Imported Intermediate Inputs: When Does the Trade Balance Improve?” Journal of Development Economics 34, 329–338.Google Scholar
  22. Michael, M. S., P. Hatzipanayotou and S. M. Miller. (1993). “Integrated Reforms of Tariffs and Consumption Taxes,” Journal of Public Economics 52, 417–428.CrossRefGoogle Scholar
  23. Panagariya, A., S. Shah and D. Mishra. (2001). “Demand Elasticities in International Trade: Are They Really Low?” Journal of Development Economics 64, 313–342.CrossRefGoogle Scholar
  24. Rodrik, D. (1992). “The Limits of Trade Policy Reform in Developing Countries,” Journal of Economic Perspective 6, 87–105.Google Scholar
  25. The World Bank. (2003). “Trade Policies in South Asia,” Draft Report.Google Scholar
  26. Wilson, J. D. (1991). “Optimal Public Good Provision with Limited Lump-Sum Taxation,” American Economic Review 81, 153–166.Google Scholar
  27. World Trade Organisation. (2001). Trade Policy Review Body—Trade Policy Review, Pakistan—Report by the Secretariat,

Copyright information

© Springer Science + Business Media, Inc. 2005

Authors and Affiliations

  1. 1.Department of EconomicsSouthern Illinois UniversityCarbondaleUSA
  2. 2.Lahore University of Management Sciences, DHALahorePakistan

Personalised recommendations