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Beyond representative households: The macro–micro impact analysis of VAT designs applied to Niger

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  • de Quatrebarbes, Céline
  • Boccanfuso, Dorothée
  • Savard, Luc

Abstract

Implementing a value added tax (VAT) system to simultaneously increase public revenues, increase economic efficiency and reduce inequalities is a significant challenge for developing countries. The question of the distributional impact of VAT design has received much attention in the literature. While VAT is a general equilibrium policy, its impact has been primarily considered in partial equilibrium contexts. However, the VAT is not only paid by final consumers in developing countries. VAT becomes a reporting burden for producers with exemptions and a financial burden if refunds of VAT credits are not timely. In this paper, we use a two-step modelling procedure —a computable general equilibrium (CGE), followed by a micro-simulation—to analyse the distributional and economic impact of various VAT designs for Niger. Our simulations show that while a flat rate is best for economic efficiency, a higher statutory VAT rate (at around five percentage points) with exemptions for staple foods, has the greatest potential for poverty reduction. When the two objectives are combined, a multiple rate is the best option if VAT credits are refunded. By using a disaggregated macro–micro framework, we illustrate the importance of capturing the specificities of VAT design to measure its distributional and economic impact.

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  • de Quatrebarbes, Céline & Boccanfuso, Dorothée & Savard, Luc, 2016. "Beyond representative households: The macro–micro impact analysis of VAT designs applied to Niger," Economic Modelling, Elsevier, vol. 57(C), pages 76-92.
  • Handle: RePEc:eee:ecmode:v:57:y:2016:i:c:p:76-92
    DOI: 10.1016/j.econmod.2016.03.018
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    1. Lu, Chun-Hui & Ueng, K.L. Glen & Chang, Juin-Jen, 2022. "Consumption indivisibility and the optimal tax mix," Economic Modelling, Elsevier, vol. 112(C).
    2. Touhami Abdelkhalek & Dorothée Boccanfuso, 2021. "Impact of Tax Reforms in Applied Models: Which Functional Forms Should Be Chosen for the Demand System? Theory and Application for Morocco," CIRANO Working Papers 2021s-07, CIRANO.
    3. Celine de Quatrebarbes & Bertrand Laporte & Stéphane Calipel, 2021. "Fighting the soaring prices of agricultural food products. VAT versus Trade tariffs exemptions in a context of imperfect competition in Niger : CGE and micro-simulation approach," Working Papers hal-03138369, HAL.
    4. Lemelin, André & Savard, Luc, 2022. "What do CGE models have to say about fiscal reform?," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 758-774.
    5. Céline de Quatrebarbes & Bertrand Laporte & Stéphane Calipel, 2021. "Fighting the soaring prices of agricultural food products -VAT versus Trade tariffs exemptions. A case study in Niger," Working Papers hal-03164636, HAL.

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    More about this item

    Keywords

    Computable general equilibrium model; Micro-simulation; Value added tax; Distributional analysis; Niger;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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