Africa Region Working Paper Series No.103

Abstract

This paper applies a partial equilibrium model (Verdoorn, 1960) to analyze the fiscal revenue implications of the prospective economic partnership agreement (EPA) between ECOWAS and the EU. We find that, under standard import price and substitution elasticity assumptions, eliminating tariffs on all imports from the EU would increase ECOWAS’ imports from the EU by 10.5–11.5 percent for selected ECOWAS countries, namely Cape Verde, Ghana, Nigeria and Senegal. This increase in imports from the EU would be accompanied by a 2.4–5.6 percent decrease in total government revenues, owing mainly to lower fiscal revenues.

Tariff revenue losses should represent 1.0 percent of GDP in Nigeria, 1.7 percent in Ghana, 2.0 percent in Senegal and 3.6 percent in Cape Verde. However, the revenue losses may be manageable because of several mitigating factors, in particular the likelihood of product exclusions, the length of the EPA implementation period and the scope for reform of exemptions regimes. The large country-by-country differences in fiscal revenue loss suggest that domestic tax reforms and fiscal transfers within ECOWAS could be important complements to EPA implementation.

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