Effects of tariff reduction and tax replacements

Poverty has been the image associated to Ethiopia by different individuals for the last several years. However, if proper economic policies have been implemented, the current extent of poverty will not be so serious as it is today. This initiated me to write the paper. This work was based on the CGE-Micro Simulation Analysis. Proper Trade policy was found to have significant impact on growth and poverty reduction. This book attempts to address the effect of tariff reduction and tax replacement on growth and poverty If tariff reduction was accompanied by a direct tax replacement, there is marginal effect on growth and poverty reduction. However the industrial sector will be severely affected despite increased income for the agricultural sector. If tariff reduction was accompanied by indirect tax replacement, there would be a worsening effect of poverty and reduced income in general. This was mainly due to the inefficiency on indirect taxation system in Ethiopia. Hence before implementing tariff-indirect tax adjustment, it is crucial to develop the tax system. On the other hand, with no tax replacement, a tariff reduction has a significant effect on growth and poverty reduction.