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

The aim of this paper is to assess the possible impacts of the Doha round of negotiations on poverty in Cameroon. 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. If the Rest of the World (ROW) and Cameroon trade liberalizations are combined, the adverse impacts of own liberalization outweigh the favorable outcomes of the ROW liberalization. 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. Our results suggest furthermore that the choice of tax replacement instrument can have 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 supplementary distortions which are nil in case of neutral tax and greatest in case of consumption tax. Finally, beyond the Doha scenarios which are the focus of this study, the poverty worsening impacts of own-liberalization depicted here, raise an alarm for Cameroon. In particular, they suggest that accompanying measures should be considered in order to avoid poverty increases in the framework of Economic Partnership Agreements currently in negotiation between ACP countries and the EU, which propose a drastic dismantlement of ACP tariffs over the next few years