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Social Impact of a Tax Reform: The Case of Ethiopia

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Author Info
Stanley Sang-Wook Cho
Sònia Muñoz

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Abstract

This paper provides an assessment of the poverty and social impact of replacing Ethiopia's sales tax with a value-added tax (VAT). The results indicate that this reform has not had a major adverse effect on the poorest 40 percent of the population. The VAT is progressive in its incidence, and the higher revenues brought about by the VAT can provide additional funds for poverty-reducing spending, including primary education. At the same time, there is significant scope for making education spending more pro-poor by increasing the access of low-income households to schools.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/232.

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Length: 38 pages
Date of creation: 09 Dec 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/232

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Related research
Keywords: Poverty Ethiopia Tax reforms Value added tax Social policy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Alderman, Harold & del Ninno, Carlo, 1999. "Poverty Issues for Zero Rating VAT in South Africa," Journal of African Economies, Oxford University Press, vol. 8(2), pages 182-208, July.
  2. Shahabuddin Mosherraf Hossain, 2003. "Poverty and Social Impact Analysis-A Suggested Framework," IMF Working Papers 03/195, International Monetary Fund.
  3. Yitzhaki, Shlomo, 1983. "On an Extension of the Gini Inequality Index," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 617-28, October. [Downloadable!] (restricted)
  4. Lanjouw, Peter & Ravallion, Martin, 1998. "Benefit incidence and the timing of program capture," Policy Research Working Paper Series 1956, The World Bank. [Downloadable!]
  5. Russell Davidson & Jean-Yves Duclos, 1997. "Statistical Inference for the Measurement of the Incidence of Taxes and Transfers," Econometrica, Econometric Society, vol. 65(6), pages 1453-1466, November.
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  6. Chu, K.-y. & Davoodi, H. & Gupta, S., 2000. "Income Distribution and Tax, and Government Social Spending Policies in Developing Countries," Research Paper 214, World Institute for Development Economics Research.
  7. Hentschel, J. & Lanjouw, P., 1996. "Constructing an Indicator of Consumption for the Analysis of Poverty. Principles and Illustrations with Reference to Ecuador," Papers 127, World Bank - Living Standards Measurement.
  8. Staff Team, 2002. "Ethiopia: Second Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Requests for Augmentation of Access and for Waiver of Performance Criterion, and Second Annual," IMF Staff Country Reports 02/68, International Monetary Fund.
  9. Ke-young Chu & Hamid Reza Davoodi & Sanjeev Gupta, 2000. "Income Distribution and Tax and Government Social Spending Policies in Developing Countries," IMF Working Papers 00/62, International Monetary Fund.
  10. Devarajan, Shantayanan & Hossain, Shaikh I., 1995. "The combined incidence of taxes and public expenditures in the Philippines," Policy Research Working Paper Series 1543, The World Bank. [Downloadable!]
  11. Caroline M. Robb, 2003. "Poverty and Social Impact Analysis - Linking Macroeconomic Policies to Poverty Outcomes: Summary of Early Experiences," IMF Working Papers 03/43, International Monetary Fund. [Downloadable!]
  12. Gabriela Inchauste, 2002. "Poverty and Social Impact Analysis in PRGF-Supported Programs," IMF Policy Discussion Papers 02/11, International Monetary Fund.
  13. David E. Sahn & Stephen D. Younger, 1999. "Dominance Testing of Social Sector Expenditures and Taxes in Africa," IMF Working Papers 99/172, International Monetary Fund.
  14. Thurlow, James & Wobst, Peter, 2003. "Poverty-focused social accounting matrices for Tanzania," TMD discussion papers 112, International Food Policy Research Institute (IFPRI). [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Raghbendra Jha & T. Palanivel, 2007. "Resource Augmentation for Meeting the Millennium Development Goals in the Asia Pacific Region," ASARC Working Papers 2007-02, Australian National University, Australia South Asia Research Centre. [Downloadable!]
    Other versions:
  2. Ben Lockwood & Michael Keen, 2007. "The Value-Added Tax: Its Causes and Consequences," IMF Working Papers 07/183, International Monetary Fund. [Downloadable!]
    Other versions:
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