Question

The reduction of import duties under the reformed fiscal policy resulted in:

Options

• An increase in subsidies for farmers

• A rise in tax revenues and more spending on social sectors

• Higher public investment in PSUs

• Fall in tax revenues and less government spending on social sectors

Answer 1

Reforms reduced import duties, resulting in a fall in tax revenues and consequently less government spending on social sectors. This illustrates the fiscal trade-off of trade liberalisation: narrowing tariff revenue sources squeezed social expenditure.