Q17 – Rich governments’ incomes from customs

This question was asked to the public in Sweden, Norway, Finland, Denmark and the UK in the Sustainable Development Misconception Study 2020

In December 2020 Gapminder launches a brand new service for upgrading your worldview, where you will be able to take this (and many other) tests and become certified gapm.io/upgrader

Question

The governments of high-income countries get how much of their revenue from customs and import duties?

a) Around 2%

b) Around 12%

c) Around 22%

Correct answer

On average around 2% of a government’s revenue in high-income countries comes from import duties.

Customs are not goldmines

A long time ago, most rich cities had walls around them which enabled all goods that were brought into the cities to be taxed. Governments of countries and states all across the world have used this method to finance their costs, such as military, police and services to the citizens.

Most people believe this is still a large part of the government revenues in rich countries today. As more products than ever before are imported from abroad, it may seem intuitive, but the import taxes have been lowered everywhere to enable more trade. For all high-income countries’ total governmental revenue, it’s only 1% of the total government incomes, with some variation over years and across countries.

Almost all the rich countries’ government incomes come from their taxes on domestic companies, people’s salaries and the value added tax on goods and services.

In some rich countries, import taxes are discussed a lot as a potential way to protect jobs and industries from foreign competition. And some specific import taxes can of course become real trade barriers for some products even if they don’t look impressive as part of the total governmental budget.

Data sources

The correct answer to this question is probably lower than 2%, rather somewhere between 0.8% and 1.1%, but we use “around 2%” to make sure we are not understating it, because no single source gives an exact number and it also varies between countries and over years.

Gapminder calculated the numbers 0.8% and 1.1%, based on revenue data published by WIDER[1] and the World Bank[2][3], as described in the documentation, see [4].

We use the definition of high-income countries from the World Bank[5].

Many governments of the oil rich states in the Gulf Cooperation Council[6] have lots of incomes from oil revenues to finance their expenditures. Oil revenues accounted for between 50 and 90% of their total government revenues during 2012–2015.

We double-checked our calculations against this report from OECD[7] and we also collected feedback from two independent researchers of finance and macroeconomics, who confirmed they consider our correct answer to be reliable.

In this question we ask about import taxes, but the data from WIDER includes all trade taxes, including export taxes which are so small that we simply ignored them.

Source 1 – Government revenues as share of GDP, UNU WIDER, World Institute for Development Economics Research, Nov 9 2020

Source 2 – World Bank – Tax revenue (% of GDP)

Source 3 – World Bank – Customs and other import duties (% of tax revenue)

Source 4 – Share of Government incomes from trade taxes, calculated by Gapminder

Source 5 – New country classifications by income level: 2019-2020, the World Bank

Source 6 – Gulf Cooperation Council, Annual Meeting of Ministers of Finance and Central Bank Governors, October 26, 2016 Riyadh, Saudi Arabia.

Source 7 – Revenue Statistics 2019 Tax revenue trends in the OECD


Date Posted: 2020-11-23