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Social Impact of a Tax Reform; The Case of Ethiopia

  • Sònia Muñoz
  • Stanley Sang-Wook Cho

This paper provides an assessment of the poverty and social impact of replacing Ethiopia's sales tax with a value-added tax (VAT). The results indicate that this reform has not had a major adverse effect on the poorest 40 percent of the population. The VAT is progressive in its incidence, and the higher revenues brought about by the VAT can provide additional funds for poverty-reducing spending, including primary education. At the same time, there is significant scope for making education spending more pro-poor by increasing the access of low-income households to schools.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/232.

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Length: 39
Date of creation: 01 Nov 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/232
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  1. Yitzhaki, Shlomo, 1983. "On an Extension of the Gini Inequality Index," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 617-28, October.
  2. Caroline M. Robb, 2003. "Poverty and Social Impact Analysis; Linking Macroeconomic Policies to Poverty Outcomes: Summary of Early Experiences," IMF Working Papers 03/43, International Monetary Fund.
  3. Hentschel, J. & Lanjouw, P., 1996. "Constructing an Indicator of Consumption for the Analysis of Poverty. Principles and Illustrations with Reference to Ecuador," Papers 127, World Bank - Living Standards Measurement.
  4. Davidson, R. & Duclos, J.Y., 1995. "Statistical Inference for the Measurement of the Incidence of Taxes and Transfers," G.R.E.Q.A.M. 95a30, Universite Aix-Marseille III.
  5. Devarajan, Shantayanan & Hossain, Shaikh I., 1995. "The combined incidence of taxes and public expenditures in the Philippines," Policy Research Working Paper Series 1543, The World Bank.
  6. Thurlow, James & Wobst, Peter, 2003. "Poverty-focused social accounting matrices for Tanzania," TMD discussion papers 112, International Food Policy Research Institute (IFPRI).
  7. Ke-young Chu & Hamid Reza Davoodi & Sanjeev Gupta, 2000. "Income Distribution and Tax and Government Social Spending Policies in Developing Countries," IMF Working Papers 00/62, International Monetary Fund.
  8. Alderman, Harold & del Ninno, Carlo, 1999. "Poverty Issues for Zero Rating VAT in South Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 8(2), pages 182-208, July.
  9. Chu, K.-y. & Davoodi, H. & Gupta, S., 2000. "Income Distribution and Tax, and Government Social Spending Policies in Developing Countries," Research Paper 214, World Institute for Development Economics Research.
  10. Lanjouw, Peter & Ravallion, Martin, 1998. "Benefit incidence and the timing of program capture," Policy Research Working Paper Series 1956, The World Bank.
  11. International Monetary Fund, 2002. "Ethiopia; Second Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Requests for Augmentation of Access and for Waiver of Performance Criterion, and Second Annual," IMF Staff Country Reports 02/68, International Monetary Fund.
  12. Gabriela Inchauste, 2002. "Poverty and Social Impact Analysis in PRGF-Supported Programs," IMF Policy Discussion Papers 02/11, International Monetary Fund.
  13. David E. Sahn & Stephen D. Younger, 1999. "Dominance Testing of Social Sector Expenditures and Taxes in Africa," IMF Working Papers 99/172, International Monetary Fund.
  14. Shahabuddin Mosherraf Hossain, 2003. "Poverty and Social Impact Analysis; A Suggested Framework," IMF Working Papers 03/195, International Monetary Fund.
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