The theory of trade policy and reform

Historically, trade taxes have been an important source of government revenue in subsistence-oriented economies with large informal sectors. As countries developed and economic activity became more market-oriented, governments sourced revenue frorn broader, more efficient tax bases. But trade taxesremained, with protection of domestic import-competing activity, rather than revenue, becoming their primary motivation. This shift of motivation also facilitated the substitution of alternative policies, quantitative restrictions for example, which would limit import competition without necessarily generating revenue.