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Long Run Vs Short Run Effects of a Value Added Tax: A Computable General Equilibrium Assessment for Cameroon

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  • Emini, Christian Arnault

Abstract

This paper examines the gap that would exist between short run effects of implementing a value added tax and long run ones. These effects are captured using a CGE model applied to the Cameroon case. The short run is assumed to be a period when only labor is mobile across production sectors while the long run is set as a time horizon at which the capital becomes also mobile. The paper focuses on the analysis of welfare effects and some resource allocation considerations. Results from simulations denote that, even if an imperfect VAT could be welfare improving in the short run, this improvement would tend to turn into welfare deterioration in the long run. On the contrary, if the VAT implemented is a pure one, the transitional welfare improvement of the short run widen in the long run; in the same line of a pure VAT, a short time welfare worsening, if any, tends to disappear or to turn into gains in the long run. To promote a sustainable welfare improvement from VAT implementation, this study then encourages countries, and particularly Cameroon, to gradually liken their VAT to a pure one; without overleaping VAT administration constraints, and some pro-socioeconomic policies which could be taken with the aim to preclude tax regressivity undesirable effects.

Suggested Citation

  • Emini, Christian Arnault, 2004. "Long Run Vs Short Run Effects of a Value Added Tax: A Computable General Equilibrium Assessment for Cameroon," Conference papers 331223, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331223
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    File URL: https://ageconsearch.umn.edu/record/331223/files/1674.pdf
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