The Poverty Impacts of the Doha Round in Cameroon: the Role of Tax Policy

The aim of this chapter is to assess the possible impacts of the Doha round of negotiations on poverty in Cameroon. During the recent period of economic recovery, Cameroon has enjoyed a sharp decline in poverty with the headcount index falling from 53.3 percent of inhabitants in 1996 to 40.2 percent in 2001, mostly thanks to economic growth rather than redistribution. Will the current trade negotiations under the Doha Round reinforce or curb this trend? We apply a CGE microsimulation model which involves 10,992 households in order to address this question. The Doha Round is found to be poverty reducing for Cameroon. For the whole country, the estimate of net number of people who are lifted out of poverty is 22,000 following this scenario. Further investigations indicate that more ambitious world trade liberalization leads to greater poverty alleviation at the national level, while Cameroon's domestic trade liberalization has adverse poverty and inequality impacts - despite giving rise to higher aggregate welfare. Under the Doha scenario, the cuts in Cameroon's tariffs in the Doha scenarios are very small (the average tariff rate moves from 11.79 percent in the base run to merely 11.66 percent) so that ROW liberalization effects on world prices more than offset the adverse own liberalization effects in this scenario. If the Rest of the World (ROW) and Cameroon full trade liberalizations are combined, the adverse impacts of own liberalization outweigh the favourable outcomes of the ROW liberalizations. Our results suggest furthermore that the choice of tax replacement instrument canhaave an important bias in poverty impacts: poverty gets worse in our country-case study when using an imperfect VAT instead of a neutral replacement tax to compensate lost tariff revenue, and gets even worse when using consumption tax. Key reasons here are the Chapter 12 in Putting Development Back into the Doha Agenda: Poverty Impacts of a WTO Agreement, Thomas W. Hertel and L. Alan Winters (eds) forthcoming from the World Bank, Washington, DC.