Trade-offs in Trade Liberalization: Evidence from the Philippine 2005 Tariff Changes

This paper provides a quantitative assessment of the tariff changes implemented by the Philippines in 2005. It evaluates the impacts of these changes on the macroeconomy and on major industries and regions of the country. It also examines the impact of alternative tariff policies that the government could have considered over the period. Using TARFCOM, a computable general equilibrium model developed for the Philippines, we demonstrate the trade-off between output growth and tariff revenues in trade liberalization. Changes in tariff rates could have a significant effect on the financial position of the government. In light of government dependence on tariff revenues, the success of tariff reform is contingent upon development of alternative revenue sources and the institutional mechanisms for effective tax administration.