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An Alternative View of Tax Incidence Analysis for Developing Countries

  • Anwar Shah
  • John Whalley

This paper revisits the long-standing issue of the incidence of taxes in developing countries. Its central theme is that despite many decades of studies, tax incidence analyses for developing countries continue to be based upon the same shifting assumptions used in developed country studies, despite some obvious pitfalls. Taxes are assumed to be shifted forward to consumers, or backwards onto factor incomes, as has been the case for developed country tax incidence work from Bowley and Stamp to Peclunan and Okner. Developing countries typically have a much different non-tax policy and regulatory environment from developed countries, with higher protection, rationed foreign exchange, price controls, black markets, credit rationing and many other features. The paper argues that all these features can greatly complicate and even obscure the incidence effects of taxes in developing countries. For several taxes, taking such features into account can reverse signs and/or substantially revise estimates of incidence effects from conventional thinking and by substantial orders of magnitude. A final section sets out some implications for country lending programs, both by type of country and level of development, and comments on how the extent to which non-tax policy reform has already been implemented affects the significance of the points raised here.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3375.

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Date of creation: Jun 1990
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Publication status: published as World Bank Economic Review, vol. 5, no. 3, September 1991
Handle: RePEc:nbr:nberwo:3375
Note: ITI PE IFM
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  1. Browning, Edgar K, 1978. "The Burden of Taxation," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 649-71, August.
  2. Bird, Richard M., 1987. "A new look at indirect taxation in developing countries," World Development, Elsevier, vol. 15(9), pages 1151-1161, September.
  3. McLure, Charles E, Jr & Thirsk, Wayne R, 1978. "The Inequity of Taxing Iniquity: A Plea for Reduced Sumptuary Taxes in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 26(3), pages 487-503, April.
  4. McLure, Charles Jr., 1977. "Taxation and the urban poor in developing countries," World Development, Elsevier, vol. 5(3), pages 169-188, March.
  5. Nguyen, Trien T. & Whalley, John, 1986. "Equilibrium under price controls with endogenous transactions costs," Journal of Economic Theory, Elsevier, vol. 39(2), pages 290-300, August.
  6. John Whalley, 1984. "Regression or Progression: The Taxing Question of Incidence Analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 17(4), pages 654-82, November.
  7. Anwar M. Chaudry-Shah, 1989. "A Capitalization Approach to Fiscal Incidence at the Local Level," Land Economics, University of Wisconsin Press, vol. 65(4), pages 359-375.
  8. Meerman, Jacob, 1980. "The Incidence of Sales and Excise Taxes, or Where Do We Put the Transfers?," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1242-48, December.
  9. Ziderman, Adrian, 1989. "Payroll taxes for financing training in developing countries," Policy Research Working Paper Series 141, The World Bank.
  10. Piggott, John & Whalley, John, 1987. "Interpreting Net Fiscal Incidence Calculations," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 685-94, November.
  11. Clarete, Ramon L. & Whalley, John, 1988. "Interactions between trade policies and domestic distortions in a small open developing country," Journal of International Economics, Elsevier, vol. 24(3-4), pages 345-358, May.
  12. Davies, James B & St-Hilaire, France & Whalley, John, 1984. "Some Calculations of Lifetime Tax Incidence," American Economic Review, American Economic Association, vol. 74(4), pages 633-49, September.
  13. Mohammad, Sharif & Whalley, John, 1985. "Controls and the Intersectoral Terms of Trade: The Indian Case," Economic Journal, Royal Economic Society, vol. 95(379), pages 759-66, September.
  14. Imam, M Hasan & Whalley, John, 1985. "Incidence Analysis of a Sector-specific Minimum Wage in a Two-Sector Harris-Todaro Model," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 207-24, February.
  15. Muhammad Hussain Malik & Najam Us Saqib, 1989. "Tax Incidence by Income Classes in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 28(1), pages 13-26.
  16. Bovenberg, A.L., 1987. "Indirect taxation in developing countries : A general equilibrium approach," Other publications TiSEM adac046e-0845-4c4e-904a-5, Tilburg University, School of Economics and Management.
  17. Nair, Govindan & Filippides, Anastasio, 1988. "How much do state-owned public enterprises contribute to public sector deficits in developing countries - and why?," Policy Research Working Paper Series 45, The World Bank.
  18. Imam, Hasan & Whalley, John, 1982. "General equilibrium with price intervention policies: a computational approach," Journal of Public Economics, Elsevier, vol. 18(1), pages 105-119, June.
  19. Auerbach, Alan, 1990. "The cost of capital and investment in developing countries," Policy Research Working Paper Series 410, The World Bank.
  20. Ahmad, Ehtisham & Stern, Nicholas, 1990. "Tax Reform and Shadow Prices for Pakistan," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 135-59, January.
  21. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "General Equilibrium Analysis of Tax Policies," NBER Chapters, in: A General Equilibrium Model for Tax Policy Evaluation, pages 6-24 National Bureau of Economic Research, Inc.
  22. Shoven, John B & Whalley, John, 1984. "Applied General-Equilibrium Models of Taxation and International Trade: An Introduction and Survey," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1007-51, September.
  23. Heady, Christopher, 1987. "Designing Taxes with Migration," Economic Journal, Royal Economic Society, vol. 97(388a), pages 87-98, Supplemen.
  24. John Whalley, 1989. "Recent Trade Liberalization in the Developing World: What is Behind It, and Where is it Headed?," NBER Working Papers 3057, National Bureau of Economic Research, Inc.
  25. repec:cup:cbooks:9780521266550 is not listed on IDEAS
  26. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
  27. Ary Lars Bovenberg, 1986. "Indirect Taxation in Developing Countries; A General Equilibrium Approach," IMF Working Papers 86/1, International Monetary Fund.
  28. Bird, Richard M & Miller, Barbara Diane, 1989. "The Incidence of Indirect Taxes on Low-Income Households in Jamaica," Economic Development and Cultural Change, University of Chicago Press, vol. 37(2), pages 393-409, January.
  29. Ahmad, Ehtisham & Ludlow, Stephen, 1989. "The distributional consequences of a tax reform on a VAT for Pakistan," Policy Research Working Paper Series 238, The World Bank.
  30. Pinto, Brian, 1988. "Black market premia, exchange rate unification, and inflation in sub-Saharan Africa," Policy Research Working Paper Series 37, The World Bank.
  31. Mohammad, Sharif & Whalley, John, 1984. "Rent Seeking in India: Its Costs and Policy Significance," Kyklos, Wiley Blackwell, vol. 37(3), pages 387-413.
  32. Chaudry-Shah, Anwar, 1988. " Capitalization and the Theory of Local Public Finance: An Interpretive Essay," Journal of Economic Surveys, Wiley Blackwell, vol. 2(3), pages 209-43.
  33. St-Hilaire, France & Whalley, John, 1983. "A Microconsistent Equilibrium Data Set for Canada for Use in Tax Policy Analysis," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 29(2), pages 175-204, June.
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