The empirical evidence on the relationship between trade orientation and growth in developing countries has been hotly contested for over half a century. This column focuses on the dynamic effects of trade liberalisation on tax revenue. Using a worldwide panel dataset, it shows a statistically negative effect of liberalisation on (non-resource) tax revenues in the short term and no significant effect in the medium term. Implementing a VAT prior to liberalisation mitigates its negative effects on tax revenues.
