Nicaragua`s Fiscal Policy: Disadvantages of the elimination of tariff barriers

Abstract

Introduction: This article examines the negative impact on Nicaragua’s fiscal policy of eliminating tariffs as a strategy for expanding into international markets in the medium and long term. Objective: To analyze the impact that the elimination of tariffs would have on Nicaragua’s fiscal policy, identifying key elements such as, first, direct and indirect taxes and tariffs; second, the trade balance; and third, protectionism; in order to assess the viability of the country’s fiscal policy. The article provides the basis for understanding the impact of tariffs on Nicaragua’s fiscal policy; it also analyzes the disadvantages of the country not collecting revenue and to whom the tax burden would be shifted. Methodology: Qualitative with an explanatory scope, considering the taxes that contribute most to the economy, the trade balance, and overall tax revenue. Results: It was found that the trade balance as of the second quarter of 2025 was in deficit and that this trend has been steadily increasing. The General Customs Directorate’s highest revenue is derived from fines for customs smuggling and monetary penalties. The General Directorate of Revenue derives its largest revenue from the Income Tax (IR) and the Value-Added Tax (VAT). Conclusions: Nicaragua’s trade policy is currently oriented toward agreements between countries and, therefore, toward tariff elimination.