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The replacement of payroll tax by a tax on revenues: A study of sectorial impacts on the Brazilian economy

Author

Listed:
  • Wilton Bernardino da Silva

    (Departamento de Economia, Universidade Federal de Pernambuco, Brasil)

  • Nelson Leitão Paes

    (Departamento de Economia, Universidade Federal de Pernambuco, Brasil)

  • Raydonal Ospina

    (Departamento de Estatística, Universidade Federal de Pernambuco, Brasil)

Abstract

A topic of current research in discussion about the Brazilian economy is the exemption from payroll taxes, which aims to stimulate competitiveness of the firms, boosting economic growth. This topic was introduced in Brazil by new laws that proposed replacing the payroll tax with a new tax on revenues. The payroll tax rate of 20% was replaced by a tax rate of 1% or 2% on revenue. This change has been applied primarily in labor-intensive economic sectors. In this paper, a neoclassical model was used to evaluate some sectoral impacts of these tax changes. The results show positive effects of this reform, among them, the increase in aggregate consumption and capital stock. Employment also grows in the labor-intensive sector. However, under a government revenue neutral scenario, these effects are almost completely lost, which shows some evidence about the low efficiency of these reforms....

Suggested Citation

  • Wilton Bernardino da Silva & Nelson Leitão Paes & Raydonal Ospina, 2015. "The replacement of payroll tax by a tax on revenues: A study of sectorial impacts on the Brazilian economy," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 16(1), pages 46-59.
    • Handle: RePEc:anp:econom:v:16:y:2015:1:46_59
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    Citations

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    Cited by:

    1. Saeed Solaymani, 2020. "Assessing the economic and social impacts of fiscal policies," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 47(3), pages 671-694, March.

    More about this item

    Keywords

    Neoclassical models; Tax reforms; Payroll tax exemption;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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