TRADE, TAXES AND DEBT REPAYMENT IN SRI-LANKA

The purpose of this article is to estimate the cost of taxing the export, import or domestic sectors of Sri Lanka for the purpose of reducing the national debt. A simple GNP model is used to estimate the elasticities that characterise the three aggregate sectors and are used to simulate the effects of taxing for debt servicing. The results show that a tax on the import sector generates the largest net savings on trade balance and that the savings from not importing can be substantial. However, for the period 1977-87 a 10.0 per cent tax on the import sector caused a decline in the growth of the economy by 3.0 percent. The burden of the tax falls heavily on the domestic sector in terms of lost production and increased unemployment.