General Equilibrium Impacts VAT and Corporate Tax in Thailand

We construct a CGE model of Thailand in order to assess economy wide impacts of reforms in the value added tax (VAT) and corporate income tax (CIT) on welfare and reallocation of resources across production sectors in the Thai economy. Our model was calibrated to the micro consistent benchmark data set contained in the Input-Output Table published in 2010 by the Office of National Economics and Social Development Board (NESD) with some restructuring into 18 sectors. The general algebraic modelling system (GAMS) was used to estimate the parameters of the model. The findings reveal that aggregate net changes in welfare of 10 percent VAT are better than zero percent VAT. Thus, increasing VAT from 7 to 10 percent becomes desirable policy action on the basis of economy wide welfare analysis because utility from the public services for the households more than compensates their loss of utility due to higher taxes. On the net welfare basis, the decreasing CIT rate from 30 to 20 percent is more preferable policy than 23 percent CIT. This model based analysis is a unique contribution to the current literature on impacts of VAT and corporate income tax in the Thai economy though further scope remains for full impact analysis of comprehensive reforms such as the GST with dynamic model and multi households.