IDEAS home Printed from https://ideas.repec.org/a/eme/igdrpp/v7y2014i2p181-201.html
   My bibliography  Save this article

Targeting, cascading and indirect tax design

Author

Listed:
  • Michael Keen

Abstract

Purpose - – The purpose of this paper is to address two fundamental issues in indirect tax design. It first revisits the case for reduced rates on items especially important to the poor, and then explores the welfare costs from cascading taxes. Design/methodology/approach - – Applied theory was used in this paper. Findings - – On the first issue, the paper establishes conditions under which even very crudely targeted spending measures better serve the interests of the poor than does the reduced taxation of particular commodities looming large in their consumption. On the second, it shows that these may actually be lower the wider the set of inputs that are taxed but, more to the point, may plausibly be large even at a low nominal tax rate and with relatively few stages of production: contrary to a common mantra, “a low rate on a broad base” is not always good policy. Originality/value - – Both issues addressed in the paper are recurrent and central concerns in the design of indirect taxes in general, and the value-added tax (VAT)/general sales tax (GST) in particular. The author is unaware of other treatments that are at all comparable in perspective or results. The author hopes the analysis will prove useful in many contexts where these issues arise – not least in India, where these issues are central to discussions of VAT/GST reform.

Suggested Citation

  • Michael Keen, 2014. "Targeting, cascading and indirect tax design," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 7(2), pages 181-201, November.
    • Handle: RePEc:eme:igdrpp:v:7:y:2014:i:2:p:181-201
    DOI: 10.1108/IGDR-02-2013-0009
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/IGDR-02-2013-0009/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/IGDR-02-2013-0009/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/IGDR-02-2013-0009?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. A. Lans Bovenberg, 1987. "Indirect Taxation in Developing Countries: A General Equilibrium Approach," IMF Staff Papers, Palgrave Macmillan, vol. 34(2), pages 333-373, June.
    2. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    3. Bird,Richard & Gendron,Pierre-Pascal, 2011. "The VAT in Developing and Transitional Countries," Cambridge Books, Cambridge University Press, number 9781107401440.
    4. Bovenberg, A.L., 1987. "Indirect taxation in developing countries : A general equilibrium approach," Other publications TiSEM adac046e-0845-4c4e-904a-5, Tilburg University, School of Economics and Management.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Richard M. Bird & Eric M. Zolt, 2014. "Taxation and inequality in the Americas: Changing the fiscal contract?," Chapters, in: Richard M. Bird & Jorge Martinez-Vazquez (ed.), Taxation and Development: The Weakest Link?, chapter 7, pages 193-237, Edward Elgar Publishing.
    2. Jaejoon Woo & Elva Bova & Tidiane Kinda & Y. Sophia Zhang, 2017. "Distributional Consequences of Fiscal Adjustments: What Do the Data Say?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(2), pages 273-307, June.
    3. Mario Mansour, 2015. "Tax Policy in MENA Countries: Looking Back and Forward," IMF Working Papers 2015/098, International Monetary Fund.
    4. Kleven, Henrik & Best, Michael & Spinnewijn, Johannes & Waseem, Mazhar & Brockmeyer, Anne, 2013. "Production vs Revenue Efficiency With Limited Tax Capacity: Theory and Evidence From Pakistan," CEPR Discussion Papers 9717, C.E.P.R. Discussion Papers.
    5. Isabelle Joumard & Urban Sila & Hermes Morgavi, 2015. "Challenges and Opportunities of India's Manufacturing Sector," OECD Economics Department Working Papers 1183, OECD Publishing.
    6. Paukkeri, Tuuli, 2018. "Essays on public economics," Research Reports P72, VATT Institute for Economic Research.
    7. Ravi Kanbur & Tuuli Paukkeri & Jukka Pirttilä & Matti Tuomala, 2018. "Optimal taxation and public provision for poverty reduction," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(1), pages 64-98, February.
    8. Antonín Korauš & Miroslav Gombár & Alena Vagaská & Stanislav Šišulák & Filip Černák, 2021. "Secondary Energy Sources and Their Optimization in the Context of the Tax Gap on Petrol and Diesel," Energies, MDPI, vol. 14(14), pages 1-22, July.
    9. Elineema Kisanga & Vincent Leyaro & Wahabi Matengo & Michael Noble & Helen Barnes & Gemma Wright, 2021. "Assessing the distributional impact of lowering the value-added tax rate for standard-rated items in Tanzania and options for recouping revenue losses," WIDER Working Paper Series wp-2021-38, World Institute for Development Economic Research (UNU-WIDER).
    10. Richard M. Bird, 2014. "Foreign advice and tax policy in developing countries," Chapters, in: Richard M. Bird & Jorge Martinez-Vazquez (ed.), Taxation and Development: The Weakest Link?, chapter 4, pages 103-144, Edward Elgar Publishing.
    11. Michael Carlos Best & Anne Brockmeyer & Henrik Jacobsen Kleven & Johannes Spinnewijn & Mazhar Waseem, 2015. "Production versus Revenue Efficiency with Limited Tax Capacity: Theory and Evidence from Pakistan," Journal of Political Economy, University of Chicago Press, vol. 123(6), pages 1311-1355.
    12. Zhila Abshari & Glenn P. Jenkins & Chun-Yan Kuo & Mostafa Shahee, 2021. "Progressive Taxation versus Progressive Targeted Transfers in the Design of a Sustainable Value Added Tax System," Sustainability, MDPI, vol. 13(20), pages 1-17, October.
    13. Warwick, Ross & Harris, Tom & Phillips, David & Goldman, Maya & Jellema, Jon & Inchauste, Gabriela & Goraus-Tańska, Karolina, 2022. "The redistributive power of cash transfers vs VAT exemptions: A multi-country study," World Development, Elsevier, vol. 151(C).
    14. Iswahyudi, Heru, 2018. "Where has the money gone?: The case of Value Added Tax revenue performance in Indonesia," MPRA Paper 89876, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Keen, Michael & Lockwood, Ben, 2010. "The value added tax: Its causes and consequences," Journal of Development Economics, Elsevier, vol. 92(2), pages 138-151, July.
    2. Iris Claus & Jorge Martinez-Vazquez & VIoleta Vulovic, 2012. "Government Fiscal Policies and Redistribution in Asian Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1213, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    3. Bibek Adhikari, 2015. "When Does Introducing a Value-Added Tax Increase Economic Efficiency? Evidence from the Synthetic Control Method," Working Papers 1524, Tulane University, Department of Economics, revised Nov 2015.
    4. Céline DE QUATREBARBES & Luc SAVARD & Dorothée BOCCANFUSO, 2011. "Can the removal of VAT Exemptions support the Poor? The Case of Niger," Working Papers 201106, CERDI.
    5. Saadia Refaqat, 2005. "Redistributive Impact of GST Tax Reform: Pakistan, 1990-2001," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(4), pages 841-862.
    6. Michael Keen, 2009. "What Do (and Don't) We Know about the Value Added Tax? A Review of Richard M. Bird and Pierre-Pascal Gendron's The VAT in Developing and Transitional Countries," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 159-170, March.
    7. Jorge Martinez-Vazquez, 2001. "The Impact of Budgets on the Poor: Tax and Benefit," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0110, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    8. Céline de Quatrebarbes & Savard Luc & Boccanfuso Dorothée, 2011. "Can the suppression of VAT exemption support the poor? The case of Niger," EcoMod2011 3227, EcoMod.
    9. de Quatrebarbes, Céline & Boccanfuso, Dorothée & Savard, Luc, 2016. "Beyond representative households: The macro–micro impact analysis of VAT designs applied to Niger," Economic Modelling, Elsevier, vol. 57(C), pages 76-92.
    10. Roy Bahl, 2014. "A retrospective on taxation in developing countries: Will the weakest link be strengthened?," Chapters, in: Richard M. Bird & Jorge Martinez-Vazquez (ed.), Taxation and Development: The Weakest Link?, chapter 12, pages 405-442, Edward Elgar Publishing.
    11. Chu, Ke-young & Davoodi, Hamid & Gupta, Sanjeev, 2003. "Income distribution and tax, and government social spending policies in developing countries," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34918, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    12. Craigwell, Roland C & Thomas, Chrystal, 2010. "Revisiting the effect of country size on taxation in developing countries," MPRA Paper 33470, University Library of Munich, Germany.
    13. Shah, Anwar & Whalley, John, 1990. "An alternative view of tax incidence analysis for developing countries," Policy Research Working Paper Series 462, The World Bank.
    14. Standardi, Gabriele & Bosello, Francesco & Eboli, Fabio, 2014. "A Sub-national CGE Model for Italy," Climate Change and Sustainable Development 163596, Fondazione Eni Enrico Mattei (FEEM).
    15. Jorge Martinez-Vazquez, 2007. "Budget Policy and Income Distribution," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0707, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    16. Essama-Nssah, B., 2008. "Assessing the redistributive effect of fiscal policy," Policy Research Working Paper Series 4592, The World Bank.
    17. Devarajan, Shantayanan & Robinson, Sherman, 2002. "The influence of computable general equilibrium models on policy," TMD discussion papers 98, International Food Policy Research Institute (IFPRI).
    18. Arsić, Milojko & Altiparmakov, Nikola, 2013. "Equity aspects of VAT in emerging European countries: A case study of Serbia," Economic Systems, Elsevier, vol. 37(2), pages 171-186.
    19. Jean-François Gautier, 1999. "Les paradoxes de la TVA dans un pays en développement : l'illustration de l'industrie malgache," Revue Tiers Monde, Programme National Persée, vol. 40(157), pages 187-211.
    20. Ngee-Choon Chia & Wahba, Sadek & Whalley, John, 1992. "A general equilibrium based social policy model for Cote d'Ivoire," Policy Research Working Paper Series 925, The World Bank.

    More about this item

    Keywords

    Targeting; Cascading; Indirect taxation; Value-added tax; Tax design; Welfare costs; H21; H23;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:igdrpp:v:7:y:2014:i:2:p:181-201. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.