Effects Of Tariff Reduction And Tax Replacements On Growth Poverty And Income Distribution In Ethiopia A Cge-microsimulation Analysis

This study utilizes a 15-sector static CGE model of International Food Policy Research Instituternfor Ethiopian economy. The study also used the Distributive Analysis (DAD) software to computernpoverty and inequality indicators. Increasing domestic tax rates (that is, replacing the tariffrnrevenue lost with either direct tax or indirect tax) increased exports of most agriculturalrncommodities and industrial imports causing the domestic industries to contract in production andrnemployment. Effects on GDP, consumer’s welfare, factor rewards, poverty and incomerndistribution are mixed. Replacing tariff by direct tax improved all these variables marginally byrnincreasing changes in factor rewards and decreasing the price level (CPI). On the other hand,rnreplacing tariff by indirect tax has worsening effect by deteriorating the changes in factorrnrewards and increasing the relative prices (CPI).

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