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Impact of Tax Reforms on Household Welfare

Author

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  • Matovu, John Mary
  • Twimukye, Evarist P.
  • Nabiddo, Winnie
  • Guloba, Madina

Abstract

The Uganda government has since 1987 initiated a sequence of tax reforms to address the fiscal challenges facing the country. This paper uses a Computable General Equilibrium (CGE) model to analyze the welfare effects of tax reforms on households and the impact of these challenges on production and firm activities. The findings are consistent with previous studies which found that the introduction of VAT was indeed a progressive policy reform. Zero rating all food items and agricultural products mainly benefit the low income households whose consumption basket is mainly food items. In a quest for further sources of revenue by overtaxing the rich, this could generate further revenues albeit lower savings and investments by this group. Finally, over-reliance on excise duties especially on petroleum and alcohol drinks affects the transportation sectors which are also used by the poor. In our results we find that taxation of petrol and rising excise duties indeed is a regressive policy stance.

Suggested Citation

  • Matovu, John Mary & Twimukye, Evarist P. & Nabiddo, Winnie & Guloba, Madina, 2009. "Impact of Tax Reforms on Household Welfare," Research Series 54801, Economic Policy Research Centre (EPRC).
  • Handle: RePEc:ags:eprcrs:54801
    DOI: 10.22004/ag.econ.54801
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    References listed on IDEAS

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    1. Ritva Reinikka & Paul Collier, 2001. "Uganda's Recovery : The Role of Farms, Firms, and Government," World Bank Publications - Books, The World Bank Group, number 13850, December.
    2. Steve Kayizzi-Mugerwa, 2002. "Fiscal Policy, Growth and Poverty Reduction in Uganda," WIDER Working Paper Series DP2002-33, World Institute for Development Economic Research (UNU-WIDER).
    3. Bernard Gauthier & Ritva Reinikka, 2006. "Shifting Tax Burdens through Exemptions and Evasion: an Empirical Investigation of Uganda," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 15(3), pages 373-398, September.
    4. Duanjie Chen & Ritva Reinikka-Soininen & Mr. John J Matovu, 2001. "A Quest for Revenue and Tax Incidence in Uganda," IMF Working Papers 2001/024, International Monetary Fund.
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    Cited by:

    1. Buyinza, Faisal, 2011. "Performance and Survival of Ugandan Manufacturing firms in the context of the East African Community," Research Series 150477, Economic Policy Research Centre (EPRC).

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