Introduction

The Israeli–Palestinian accord of 1994 led to the establishment of the Palestinian National Authority (PNA), with economic responsibilities and its own fiscal jurisdiction in the Gaza Strip and parts of the West Bank. Political separation, in that case, was to be accompanied by a common external tariff and by removal of some existing obstacles to fuller economic integration of the Palestinian and Israeli economies. But the establishment of a separate fiscal jurisdiction meant that the need to coordinate fiscal policies, inherent in a customs-union framework, would have to be accommodated and that mechanisms would have to be found for the apportioning of tax revenues. Those problems and the solutions offered to them are the subjects of this study.

After providing a brief historical perspective and surveying the evolution of the situation that existed when the new regime was being negotiated, the fiscal problems raised by a common customs envelope will be analyzed. The arrangements ultimately made to deal with those problems are then discussed, with special emphasis on the questions of decision- sharing and of the tax-clearance mechanism.

The few years that have passed since the establishment of the PNA have been too short a period to allow complete evaluation of the workings of the system as it has functioned in practice, the more so because political and security developments have overshadowed and disrupted the economic scene for most of the period.