The impact of tariff reforms on income distribution in Pakistan : A CGE-based analysis

The study examines the impact of reduction in tariff on industrial goods across households and on other broad macroeconomic aggregates. Using a CGE model framework, we analyse the impact of reduction in tariff on industrial goods. The model has 215 equations explaining the linkage among the variables. The basic data for estimating the model are taken from Social Accounting Matrix for the year 1989-90. The simulation exercise suggests that the negative impact of changes in relative prices in response to reduction in tariff rate are disproportionately higher for the lower income group. The gap between the rich and poor households is widening. Decline in investment also has negative implications for the economy as a whole. The paper suggests that income distribution is worsening in rural and urban areas of Pakistan due to reduction in tariff rate on industrial imports. (Pak Dev Rev/DÜI)