On Trade Policy Reform and the Missing Revenue: an Application to Mozambique

In many developing countries, large discrepancies exist between revenues implied by published tariff rates multiplied by estimated import volumes and actual receipts. We develop a stylized trade model where average and marginal tariff rates diverge and incorporate insights from this model into a computable general equilibrium model of Mozambique to study the implications of trade policy reform. Model simulations indicate that lowering tariff rates and reducing duty free importation in a manner that maintains official revenue benefits nearly everyone with the main exception being those, who benefited from duty free imports in the base.