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A poverty-focused evaluation of commodity tax options

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  • B. Essama-Nssah

    (Poverty Reduction Group, The World Bank, NW, Washington, D.C.)

Abstract

The difficulties faced by many developing countries in raising revenue from direct taxes have forced them to rely heavily on indirect taxes to finance development interventions. The purpose of this paper is to illustrate how to identify socially desirable options for commodity taxation in the context of a poverty reduction strategy. Within the logic of social evaluation we assess tax options on the basis of value judgments underlying members of the additively separable class of poverty measures. The criterion hinges on both the pattern of consumption of each commodity and the price elasticity of the poverty measure used. An application of this methodology to data for Guinea shows that many components of food expenditure (particularly cereals, grains and roots) would be good candidates for exemption from VAT. Even though expenditure on health and education is distributed in favour of the non-poor, their importance for human capital development argues for a program of targeted subsidies in a broader context of cost recovery. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • B. Essama-Nssah, 2007. "A poverty-focused evaluation of commodity tax options," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(8), pages 1114-1130.
  • Handle: RePEc:wly:jintdv:v:19:y:2007:i:8:p:1114-1130
    DOI: 10.1002/jid.1388
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    File URL: http://hdl.handle.net/10.1002/jid.1388
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    References listed on IDEAS

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    1. Sami Bibi & Jean-Yves Duclos, 2007. "Poverty-decreasing indirect tax reforms: Evidence from Tunisia," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(2), pages 165-190, April.
    2. Emran, M. Shahe & Stiglitz, Joseph E., 2005. "On selective indirect tax reform in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 599-623, April.
    3. Joel Slemrod & Shlomo Yitzhaki, 1996. "The Costs of Taxation and the Marginal Efficiency Cost of Funds," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 172-198, March.
    4. Essama-Nssah B. & Lambert, Peter J., 2006. "Measuring the pro-poorness of income growth within an elasticity framework," Policy Research Working Paper Series 4035, The World Bank.
    5. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, May.
    6. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-278, June.
    7. Jenkins, Stephen P & Lambert, Peter J, 1997. "Three 'I's of Poverty Curves, with an Analysis of UK Poverty Trends," Oxford Economic Papers, Oxford University Press, vol. 49(3), pages 317-327, July.
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    Cited by:

    1. Essama-Nssah, B., 2008. "Assessing the redistributive effect of fiscal policy," Policy Research Working Paper Series 4592, The World Bank.
    2. Backiny-Yetna, Prospère & Wodon, Quentin, 2010. "Pauvreté en Guinée de 1994 à 2007: Tendances, perceptions, et priorités des ménages
      [Poverty in Guinea from 1994 to 2007: Trends, Perceptions, and Household Priorities]
      ," MPRA Paper 34380, University Library of Munich, Germany.
    3. Essama-Nssah, B. & Bassole, Leandre, 2010. "A counterfactual analysis of the poverty impact of economic growth in Cameroon," Policy Research Working Paper Series 5249, The World Bank.

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