Christian Arnault Émini The University of Yaoundé II - Cameroon Workshop on Economic Partnership Agreements (EPAs) For Southern Africa Maputo (Mozambique) 4 – 5 April 2005 The Poverty Impacts of the Doha The Poverty Impacts of the Doha Round and the Role of Tax Policy: Round and the Role of Tax Policy: A Case Study for Cameroon A Case Study for Cameroon John Cockburn Université Laval – Quebec, Canada Bernard Decaluwé Université Laval – Quebec, Canada
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Christian Arnault Émini The University of Yaoundé II - Cameroon Workshop on Economic Partnership Agreements (EPAs) For Southern Africa Maputo (Mozambique)
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Christian Arnault Émini
The University of Yaoundé II - Cameroon
Workshop on Economic Partnership Agreements (EPAs)
For Southern Africa
Maputo (Mozambique) 4 – 5 April 2005
The Poverty Impacts of the Doha The Poverty Impacts of the Doha Round and the Role of Tax Policy:Round and the Role of Tax Policy:
A Case Study for CameroonA Case Study for Cameroon
The Poverty Impacts of the Doha The Poverty Impacts of the Doha Round and the Role of Tax Policy:Round and the Role of Tax Policy:
A Case Study for CameroonA Case Study for Cameroon
John CockburnUniversité Laval – Quebec, Canada
Bernard DecaluwéUniversité Laval – Quebec, Canada
Background on economy and poverty in Cameroon
Current patterns of trade and protection in Cameroon
Synopsis of the Doha impacts on Cameroon
Digression on the issue of tax replacement
Conclusions
SUMMARYSUMMARYSUMMARYSUMMARY
4
Openness of the Cameroonian EconomyOpenness of the Cameroonian Economy
Real GDP Trends Before, During, and Beyond Real GDP Trends Before, During, and Beyond the 1986-1994 Economic Crisisthe 1986-1994 Economic Crisis
-1400
-1050
-700
-350
0
350
700
1050
14001
98
1
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
Years
Real
GD
P p
er
cap
ita .
in 1
99
0 U
S$
.
-20
-15
-10
-5
0
5
10
15
20
Gro
wth
Rate
s in
% .
Real GDP per capita in 1990US$ Real GDP per capita Growth Rate (%)
Real GDP Growth Rate (%)
5
Trend in povertyTrend in poverty
53.3
40.2
19.113.8
9 6.4
0
10
20
30
40
50
60
Per
cen
tag
es .
Poverty headcount Poverty gap Poverty severity
Poverty indices
1996 2001
Trend in poverty indices between 1996 and 2001Trend in poverty indices between 1996 and 2001
6
Trend in povertyTrend in poverty
18.2
27.8
6.8
12
3.2
6.6
0
5
10
15
20
25
30
Perc
en
tag
e p
oin
ts .
Poverty headcount Poverty gap Poverty severity
Poverty indices
1996 2001
Difference between the value of a poverty index among Difference between the value of a poverty index among rural households and the value of that index among rural households and the value of that index among
urban householdsurban households
7
Trend in povertyTrend in poverty
Bounds of Poverty HeadcountIndex at Provincial level
20.9 %33.7 %40.2 %46.8 %58.5 %
Bounds of Poverty HeadcountIndex at Subdividional level
03.3%37.0%41.9%48.6%96.2%
8
Trend in povertyTrend in poverty
Relative Contribution to PovertyBounds Based on Poverty Headcount by Division
0.1%1.2%1.5%2.1%8.0%
9
The Cameroon Social Accounting Matrix for 2001 The Cameroon Social Accounting Matrix for 2001
Sets Sets Description of elementsDescription of elements
Percentage changes in poverty and inequality indices
Poverty headcount Poverty gap Poverty severity Gini index
28
Poverty impactsPoverty impacts
-10.00-8.00-6.00
-4.00-2.00
0.002.00
4.006.00
8.00
Perc
en
t
Food In
dust
ryB
uild
ing a
nd
Bre
edin
gA
gric
ultu
re,
Food T
rade
Min
ing
Text
ileW
ood
Chem
ical
Indust
ry o
fM
eta
ls,
Energ
y, G
as,
Tra
nsp
ort
Genera
lH
ote
l and
Banks
and
Not C
lass
ified
Oth
er T
rades
Mis
cella
neous
Public
Percent change in poverty headcount by occupational activity of the head of household
29
Poverty impactsPoverty impacts
Number of former poor people who
escape from poverty
Number of former non poor people
who become poor
Net change in the number of poor
people
A B C=B-A
56,000 14,000 -42,000
Estimates of changes in the number of poor Estimates of changes in the number of poor following the Doha scenariofollowing the Doha scenario
31
Digression on the issue of Tax ReplacementDigression on the issue of Tax Replacement
To capture the possible bias induced by the choice of the replacement tax, we compare the effects of combined ROW and Cameroon liberalization using alternatively two taxation systems as replacement tax: A Value Added Tax A proportional household consumption tax.
VAT versus neutral consumption tax as VAT versus neutral consumption tax as replacement taxreplacement tax
32
Digression on the issue of Tax ReplacementDigression on the issue of Tax Replacement
Importance of the VAT among indirect taxes Importance of the VAT among indirect taxes in Cameroon – year 2001in Cameroon – year 2001
53
27
19 1
0
10
20
30
40
50
60
Perc
en
tag
e
Value AddedTax
Import tariffs Excises andmisc. Taxes
Export duties
Share in total revenue of indirect taxes
33
Digression on the issue of Tax ReplacementDigression on the issue of Tax Replacement
The VAT applied in Cameroon is progressiveThe VAT applied in Cameroon is progressive
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Perc
en
t
1 2 3 4 5 6 7 8 9 10
Household groups by deciles .
Effective rate of VAT paid by household deciles
Average VAT
effective rate
34
Digression on the issue of Tax ReplacementDigression on the issue of Tax Replacement
Comparative effectsComparative effects on price indices on price indices
9.02
5.98
-7.57
-4.92
-1.5 -0.79
-8.69
-4.59
-10.85
-5.71
-9.01
-4.72
-7.72
-2.4
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
Per
cent
cha
nges
Realexchange
rate
Output Exports Locally soldoutput
Imports Totalabsorption
Householdconsumption
Scenario with neutral consumption replacement tax
Scenario with VAT as replacement tax
35
Digression on the issue of Tax ReplacementDigression on the issue of Tax Replacement
Comparative effectsComparative effects on volume indices on volume indices
-0.03 -0.01
14.11
9.65
-2.41-0.8
13.91
9.53
-0.46 0.44
-4.62
-2.64
-6
-4
-2
0
2
4
6
8
10
12
14
16
Per
cent
cha
nges
Output Exports Locally soldoutput
Imports Total absorption Householdconsumption
Scenario with neutral consumption replacement tax
Scenario with VAT as replacement tax
36
Digression on the issue of Tax ReplacementDigression on the issue of Tax Replacement
Comparative effectsComparative effects on factor remuneration on factor remuneration rates, household income and welfarerates, household income and welfare
-12
-10
-8
-6
-4
-2
0
Per
cen
tag
e ch
ang
e .
Agr
icul
tura
lla
bor
Non
agric
ultu
ral
labo
r
Com
posi
tela
bor
Agr
icul
tura
lca
pita
l
Non
agric
ultu
ral
capi
tal
Tot
al c
apita
l
Land
Hou
seho
ldgr
oss
inco
me
Hou
seho
ldco
nsum
ptio
nbu
dget
EV
as
% o
fin
itial
cons
umpt
ion
Neutral consumption tax as replacement tax VAT as replacement tax
37
Digression on the issue of Tax ReplacementDigression on the issue of Tax Replacement
Comparative effectsComparative effects on household income on household income
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
Perc
en
t ch
an
ge
Urbanhouseholds
Ruralhouseholds
Male-ledhouseholds
Female-ledhouseholds
Poor people inbase run
Non poorpeople in base
run
Neutral consumption tax as replacement tax VAT as replacement tax
38
Digression on the issue of Tax ReplacementDigression on the issue of Tax Replacement
Comparative effectsComparative effects on poverty headcount on poverty headcount
16.38
10.69
33.67
22.93
13.19
8.43
18.65
12.31
8.88
5.36
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Perc
en
t ch
an
ge
Cameroon Urbanhouseholds
Ruralhouseholds
Male-ledhouseholds
Female-ledhouseholds
Neutral consumption tax as replacement tax VAT as replacement tax
39
Digression on the issue of Tax ReplacementDigression on the issue of Tax Replacement
Comparative effects on the number of poorComparative effects on the number of poor
Number of former poor people who escape from
poverty
Number of former non poor
people who become poor
Net change in the number of poor people
A B C=B-A
Neutral consumption tax as the replacement tax
63,000 999,000 +936,000
VAT as the replacement tax
43,000 708,000 +665,000
41
ConclusionsConclusions
Doha development round might contribute to poverty alleviation in Cameroon
However, policymakers should be aware of:
The importance of choosing appropriate replacement taxes
The negative poverty impacts of the elimination of domestic tariffs
The evidence that some households will lose out and possibly fall into poverty, even if national poverty rates fall.
42
ConclusionsConclusions
Free-trade in ROW strongly alleviates poverty, at least at
the national level
Whereas Cameroon’s own liberalization worsens the
poverty and inequality situations
In case of combined ROW and own liberalization, the
adverse impacts of own liberalization proves to strongly