Trade Liberalization-Trade Revenue Nexus: An Empirical Enquiry of Trade Laffer Curve of Pakistan

Abstract

This study tries to explore the trade revenue implication of trade liberalization for Pakistan. Laffer curve approach is used to see the non-linear relationship between trade openness and trade tax revenue.  Empirical evidence shows that trade openness has constructive impact on trade tax revenue in linear term. The non-linear relationship has also been explored in the presence of other macroeconomic variables. The marginal impact of non-liner squire trade liberalization has adverse effect on trade tax revenue. In the long run, the empirical investigation proves the existence of inverted U-shaped behavior between trade liberalization and trade tax revenue in Pakistan but this behavior does not exist in short run.