Tax Revenues in Low-Income Countries
Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review
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|Number of pages||24|
|Journal / Publication||Economic Journal|
|Online published||15 Mar 2023|
|Publication status||Published - Jul 2023|
We quantitatively investigate the welfare costs of increasing tax revenues in low-income countries. We consider three tax instruments: consumption, labour income and capital income taxes. The analysis is based on a general equilibrium model featuring heterogeneous agents, incomplete financial markets, and rural and urban areas. We calibrate the model to Ethiopia and decompose the welfare costs into their aggregate and distributional components. We find that changing taxes alter the composition of demand. This, together with limited labour mobility, causes the incidence of higher taxes to fall disproportionately on the rural population, regardless of the instrument. Consumption taxes are the instrument with the largest welfare loss. © The Author(s) 2023.
- TAXATION, RISK, CONSUMPTION, INFORMALITY, DYNAMICS
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