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Tax Reforms and Network Effects

Author

Listed:
  • Bruno Ricardo Delalibera

    (Universitat de Barcelona)

  • Pedro Ferreira

    (EPGE/FGV)

  • Diego Gomes

    (IMF)

  • Johann Soares

    (EPGE/FGV)

Abstract

This paper investigates the effects of a tax reform that eliminates tax rate heterogeneity and cumulative taxation using a general equilibrium model with multiple sectors with market power. Industries are connected through input-output linkages, and changes in taxation are not confined within industries. We calibrate the model to Brazil, a country with a highly distorted tax system. The revenue-neutral tax reform generates gains of 7.8% of GDP and 1.9% of welfare. Just eliminating VAT rate dispersion leads to a 5.9% increase in GDP. Due to propagation effects, in 10 sectors direct taxes increased but output and profits did not fall.

Suggested Citation

  • Bruno Ricardo Delalibera & Pedro Ferreira & Diego Gomes & Johann Soares, 2023. "Tax Reforms and Network Effects," UB School of Economics Working Papers 2023/456, University of Barcelona School of Economics.
    • Handle: RePEc:ewp:wpaper:456web
    as

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    File URL: http://hdl.handle.net/2445/204640
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    References listed on IDEAS

    as
    1. Bart Hobijn & Fernanda Nechio, 2019. "Sticker Shocks: Using VAT Changes to Estimate Upper-Level Elasticities of Substitution," Journal of the European Economic Association, European Economic Association, vol. 17(3), pages 799-833.
    2. Michael Keane & Richard Rogerson, 2015. "Reconciling Micro and Macro Labor Supply Elasticities: A Structural Perspective," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 89-117, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    tax distortions; input-output linkages; shock propagation; VAT dispersion;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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