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Tax Systems Under Fiscal Adjustment

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  • Victor Duarte Lledo
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    Abstract

    This paper uses a dynamic computable general equilibrium model (CGE) to analyze the macroeconomic and redistributive effects of replacing turnover and financial transaction taxes in Brazil by a consumption tax. In order to approximate Brazil''s compliance with its fiscal adjustment targets, the proposed reform is subject to a non increasing path for the level of public debt. Despite an increase in the average consumption tax rate in the first years after the reform, a majority of individuals experienced an increase in their lifetime welfare. This result rejects the hypothesis that the on-going fiscal adjustment effort carried on by the Brazilian government was an obstacle to the implementation of a more efficient tax system.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/142.

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    Length: 33
    Date of creation: 01 Jul 2005
    Date of revision:
    Handle: RePEc:imf:imfwpa:05/142

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    Related research

    Keywords: Tax reforms; Fiscal reforms; Economic models; tax reform; tax system; tax revenues; fiscal adjustment; tax burden; consumption tax; tax rates; tax systems; public debt; taxation; tax base; tax bases; consumption taxes; income taxes; total tax burden; federal taxes; federal tax; tax structure; payroll taxes; substitution effect; income effect; tax revenue; effective tax rates; government expenditures; fiscal surplus; revenue collection; budget constraint; property tax; tax reform proposals; fiscal adjustment effort; optimal taxation; fiscal reform; tax policy; capital stock; vat system; payroll tax; taxes on property; marginal tax rates; tax evasion; efficient tax system; tax payments; tax effort; public spending; indirect tax; total tax revenue; indirect tax system; average tax rate; flat income tax; burden of taxes; indirect taxes; amount of tax; fiscal aggregates; taxes on labor; import taxes; fiscal targets; taxation of capital income; sales tax; fiscal adjustment process; indirect taxation; fiscal surpluses; tax competition; tax bill; formal sector; debt service; inefficient taxes; taxes on capital; tax on capital; tax-gdp ratio; taxes necessary; government budget; public deficits; taxes on international trade; central government budget; tax autonomy; tax experiment; tax reform process; property tax revenues; income groups; public finances; tax profits; government budgets; proportional tax; fiscal variables; tax rates on capital; public finance; fiscal sources; fiscal policy; budget rigidities; tax incidence; intergovernmental revenue; government spending; major tax reform; taxes on income; general taxation; efficient taxes; distortionary taxation; expenditure programs; vat rate;

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    References

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    1. Ellen R. McGrattan, 1991. "The macroeconomic effects of distortionary taxation," Discussion Paper / Institute for Empirical Macroeconomics 37, Federal Reserve Bank of Minneapolis.
    2. Nancy L. Stokey & Sergio Rebelo, 1993. "Growth Effects of Flat-Rate Taxes," NBER Working Papers 4426, National Bureau of Economic Research, Inc.
    3. King, Robert G & Rebelo, Sergio, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S126-50, October.
    4. Alan J. Auerbach & Laurence J. Kotlikoff & Jonathan Skinner, 1983. "The Efficiency Gains from Dynamic Tax Reform," NBER Working Papers 0819, National Bureau of Economic Research, Inc.
    5. Larry E. Jones & Rodolfo E. Manuelli & Peter E. Rossi, 1993. "On the Optimal Taxation of Capital Income," NBER Working Papers 4525, National Bureau of Economic Research, Inc.
    6. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
    7. Shinichi Nishiyama & Kent Smetters, 2003. "Consumption Taxes and Economic Efficiency in a Stochastic OLG Economy," NBER Working Papers 9492, National Bureau of Economic Research, Inc.
    8. Suescun, Rodrigo, 2004. "Raising revenue with transaction taxes in Latin america - or is it better to tax with the devil you know?," Policy Research Working Paper Series 3279, The World Bank.
    9. Gilbert Ghez & Gary S. Becker, 1975. "The Allocation of Time and Goods over the Life Cycle," NBER Books, National Bureau of Economic Research, Inc, number ghez75-1, May.
    10. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
    11. Zodrow, George R. & Mieszkowski, Peter M., 1986. "The new view of the property tax A reformulation," Regional Science and Urban Economics, Elsevier, vol. 16(3), pages 309-327, August.
    12. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
    13. Nouriel Roubini & Gian Maria Milesi-Ferrett, 1994. "Optimal Taxation of Human and Physical Capital in Endogenous Capital Models," NBER Working Papers 4882, National Bureau of Economic Research, Inc.
    14. Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1995. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc.
    15. Nicholas Bull, 1993. "When all the optimal dynamic taxes are zero," Working Paper Series / Economic Activity Section 137, Board of Governors of the Federal Reserve System (U.S.).
    16. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1996. "Are consumption taxes really better than income taxes?," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 475-503, June.
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    Cited by:
    1. Bernardo Mueller & Lee Alston & Marcus Melo & Carlos Pereira, 2014. "Changing Social Contracts: Beliefs Anddissipative Inclusion In Brazil," Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting] 076, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    2. Jeromin Zettelmeyer & Ivanna Vladkova Hollar, 2008. "Fiscal Positions in Latin America," IMF Working Papers 08/137, International Monetary Fund.

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