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The marginal cost of public funds and tax reform in Africa

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  • Auriol, Emmanuelle
  • Warlters, Michael

Abstract

In this paper we propose estimates of the marginal cost of public funds (MCF) in 38 African countries. We develop a simple general equilibrium model that can handle taxes on five major tax classes, and can be calibrated with little more than national accounts data. A key feature of our model is the explicit recognition of the informal economy. Our base case estimate of the average MCF from marginal increases in all five tax instruments is 1.2. Focusing on the lowest cost tax instruments in each country, commonly the VAT but not always, the average MCF is 1.1. Finally extending the tax base to include sections of the informal economy by removing some tax exemptions offers the potential for a low MCF source of public funds, and a lowering of MCFs on other tax instruments.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 97 (2012)
Issue (Month): 1 ()
Pages: 58-72

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Handle: RePEc:eee:deveco:v:97:y:2012:i:1:p:58-72

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Web page: http://www.elsevier.com/locate/devec

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Keywords: Marginal cost of public fund; Tax reform; Developing countries; Africa;

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Cited by:
  1. Amarante, Veronica & Manacorda, Marco & Miguel, Edward & Vigorito, Andrea, 2012. "Do Cash Transfers Improve Birth Outcomes? Evidence from Matched Vital Statistics, Social Security and Program Data," CEPR Discussion Papers 8740, C.E.P.R. Discussion Papers.
  2. Bevan, David, 2012. "Aid, Fiscal Policy, Climate Change, and Growth," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. Salvador Barrios & Jonathan Pycroft & Bert Saveyn, 2013. "The marginal cost of public funds in the EU: the case of labour versus green taxes," Taxation Papers 35, Directorate General Taxation and Customs Union, European Commission.
  4. Anum Saeed & Adeel Ahmad & Khalid Zaman, 2012. "Validity of the Value Added Tax in the SAARC Region," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(45), pages 143-170, September.
  5. Christian EBEKE & Hélène EHRHART, 2011. "Does VAT reduce the instability of tax revenues?," Working Papers 201124, CERDI.

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