The Marginal Welfare Burden of Mongolia's Tax System

Taxes influence the behavior of an economy's consumers and producers in important ways, and therefore the economy as a whole. The marginal cost of raising one dollar of public funds can be higher than a dollar. Therefore, policy makers need to understand the welfare cost associated with different taxes in order to be better informed when designing tax policy. An analysis using the CGE model and employing the Global Trade Analysis Project (GTAP) 8 Data Base revealed that a simultaneous 1% increase in Mongolia's current tax rates or the marginal welfare burden of Mongolia’s tax system would result in a direct burden of US$37.05 million of tax revenue, while the excess burden to the economy equals US$0.43 million. Accordingly, for every dollar of additional tax rise, the Mongolian economy would incur 1.16 cents of excess tax burden, which is the taxes' deadweight efficiency cost to the economy. Moreover, it was revealed that by increasing consumption tax, consumer welfare and production would be more adversely affected than if the revenue was raised through an increase in any other tax.