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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

Related research

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

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References

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  1. M. Shahe Emran & Forhad Shilpi, 2008. "Estimating Import Demand Function in Developing Countries: A Structural Econometric Approach with Applications to India and Sri Lanka," Working Papers 2008-10, The George Washington University, Institute for International Economic Policy.
  2. Campbell, H F & Bond, K A, 1997. "The Cost of Public Funds in Australia," The Economic Record, The Economic Society of Australia, vol. 73(220), pages 22-34, March.
  3. M. Shahe Emran & Joseph E. Stiglitz, 2002. "On Selective Indirect Tax Reform in Developing Countries," International Trade 0210003, EconWPA.
  4. Harry F. Campbell, 1975. "Deadweight Loss and Commodity Taxation in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 8(3), pages 441-47, August.
  5. Fortin, B. & Lacroix, G., 1991. "Labour Supply, Tax Evasion and the Marginal Cost of Public Funds: An Empirical Investigation," Cahiers de recherche 9114, Université Laval - Département d'économique.
  6. Gauthier, Bernard & Gersovitz, Mark, 1997. "Revenue erosion through exemption and evasion in Cameroon, 1993," Journal of Public Economics, Elsevier, vol. 64(3), pages 407-424, June.
  7. Auriol, Emmanuelle & Warlters, Michael, 2005. "Taxation Base in Developing Countries," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
  8. Gauthier, Bernard & Reinikka, Ritva, 2001. "Shifting tax burdens through exemptions and evasion - an empirical investigation of Uganda," Policy Research Working Paper Series 2735, The World Bank.
  9. Bev Dahlby, 2008. "The Marginal Cost of Public Funds: Theory and Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262042509.
  10. Knud J., MUNK, 2008. "On the Use of Border Taxes in Developing Countries," Discussion Papers (ECON - Département des Sciences Economiques) 2008005, Université catholique de Louvain, Département des Sciences Economiques, revised 29 Jul 2011.
  11. Shaghil Ahmed & Dean Croushore, 1994. "The marginal cost of funds with nonseparable public spending," Working Papers 94-5, Federal Reserve Bank of Philadelphia.
  12. Findlay, Christopher C & Jones, Robert L, 1982. "The Marginal Cost of Australian Income Taxation," The Economic Record, The Economic Society of Australia, vol. 58(162), pages 253-62, September.
  13. Hansson, Ingemar & Stuart, Charles, 1985. "Tax revenue and the marginal cost of public funds in Sweden," Journal of Public Economics, Elsevier, vol. 27(3), pages 331-353, August.
  14. Stuart, Charles E, 1984. "Welfare Costs per Dollar of Additional Tax Revenue in the United States," American Economic Review, American Economic Association, vol. 74(3), pages 352-62, June.
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Citations

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Cited by:
  1. Verónica Amarante & Marco Manacorda & Edward Miguel & Andrea Vigorito, 2011. "Do Cash Transfers Improve Birth Outcomes? Evidence from Matched Vital Statistics, Social Security and Program Data," CEP Discussion Papers dp1106, Centre for Economic Performance, LSE.
  2. Christian EBEKE & H�l�ne EHRHART, 2011. "Does VAT reduce the instability of tax revenues?," Working Papers 201124, CERDI.
  3. 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.
  4. Bouoiyour, jamal, 2006. "Migration, Diaspora et développement humain
    [Migration, Diaspora and Human Development]    ," MPRA Paper 37014, University Library of Munich, Germany.
  5. Jellal, Mohamed, 2009. "Migration des Elites Norme Culturelle et Formation de la Diaspora
    [Brain Drain Social Norm and Diaspora Formation]    ," MPRA Paper 18011, University Library of Munich, Germany.

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