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Indirect Tax Incidence in Brazil : Assessing the Distributional Effects of Potential Tax Reforms

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  • Lara Ibarra,Gabriel
  • Rubião,Rafael Macedo
  • Simoes Fleury,Eduardo

Abstract

Using recent expenditure survey data, this paper investigates the incidence of all indirect taxesin Brazil. It applies a novel approach to estimate the effective tax rate by computing the specific cumulativetaxes levied on thousands of items available in the data set. The findings show that for every R$100 of indirect taxrevenue, the first and second deciles pay R$2 and R$3, respectively, while the ninth and tenth deciles pay R$16 andR$33, respectively. Meanwhile, indirect taxes represent between 23 and 45 percent of income among the pooresthouseholds. Simulations of a value-added tax reform suggest that it could be inequality reducing both horizontally andvertically. A flat value-added tax accompanied by excise taxes on fuel items, alcohol, and tobacco would also lead tolower decreases in expenditures. Households would spend 2.8 percent less on average, with those in the bottom (top)decile spending 7.0 percent (1.5 percent) less.

Suggested Citation

  • Lara Ibarra,Gabriel & Rubião,Rafael Macedo & Simoes Fleury,Eduardo, 2021. "Indirect Tax Incidence in Brazil : Assessing the Distributional Effects of Potential Tax Reforms," Policy Research Working Paper Series 9891, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9891
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    References listed on IDEAS

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    1. Pierre Bachas & Lucie Gadenne & Anders Jensen, 2024. "Informality, Consumption Taxes, and Redistribution," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(5), pages 2604-2634.
    2. Hunt Allcott & Benjamin B Lockwood & Dmitry Taubinsky, 2019. "Regressive Sin Taxes, with an Application to the Optimal Soda Tax," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(3), pages 1557-1626.
    3. Fernando Gaiger Silveira & Fernando Rezende & Jose Roberto Afonso & Jhonatan Ferreira, 2013. "Fiscal Equity: Distributional Impacts of Taxation and Social Spending in Brazil," Working Papers 115, International Policy Centre.
    4. Youssef Benzarti & Dorian Carloni, 2019. "Who Really Benefits from Consumption Tax Cuts? Evidence from a Large VAT Reform in France," American Economic Journal: Economic Policy, American Economic Association, vol. 11(1), pages 38-63, February.
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