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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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Citations

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Cited by:
  1. Amarante, Veronica & Manacorda, Marco & Miguel, Edward & Vigorito, Andrea, 2011. "Do Cash Transfers Improve Birth Outcomes? Evidence from Matched Vital Statistics, Social Security and Program Data," IZA Discussion Papers 6231, Institute for the Study of Labor (IZA).
  2. Miriam Frey & Zoryana Olekseyuk, 2014. "A general equilibrium evaluation of the fiscal costs of trade liberalization in Ukraine," Empirica, Springer, vol. 41(3), pages 505-540, August.
  3. Christian EBEKE & Hélène EHRHART, 2011. "Does VAT reduce the instability of tax revenues?," Working Papers 201124, CERDI.
  4. 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.
  5. Christopher Adam & David Bevan, 2014. "Public Investment, Public Finance, and Growth: The Impact of Distortionary Taxation, Recurrent Costs, and Incomplete Appropriability," IMF Working Papers 14/73, International Monetary Fund.
  6. Michael Clemens, 2014. "A Case against Taxes and Quotas on High-Skill Emigration - Working Paper 363," Working Papers 363, Center for Global Development.
  7. repec:rej:journl:v:15:y:2012:i:45:p:143-170 is not listed on IDEAS
  8. 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).

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