Christian A. Emini Torbjörn G. Jansson. Tariff revenues important for nat. budget Enforcing…...
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Transcript of Christian A. Emini Torbjörn G. Jansson. Tariff revenues important for nat. budget Enforcing…...
Christian A. EminiTorbjörn G. Jansson
Tariff revenues important for nat. budgetEnforcing…
requires
QUESTION: Which tax to choose for VarTax?Options: Income tax vs. Consumption tax
ConstINCOME
TAXES
ConstINCOME
VarTaxFixTaxFIXt
t
Sh
ock
Closure: Choice of replacement tax
Income tax Consumption tax
Unilaterally for RICH:Output tax
Input subsidiesMultilaterally remove:
Import tariffsExport subsidies
PovRich0 PovRich1
Differential poverty effect of reform
Income tax is GENERALLY* better
Why?
-100 -50 0 50
Mexico
Brazil
Thailand
Vietnam
Mozambique
Malawi
Change in poverty (1000 cap)
DIFF (Consumption - Income)
Consumption tax
Income tax
* Not in Vietnam, but the difference is very small there
Income tax influences allocation lessIncome tax is more
efficientUtility generally higher
with Income tax replacement
Utility increases in all regions with income tax
Then why was there no general poverty reduction? -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1 1.2
Mexico
Brazil
Thailand
Vietnam
Mozambique
Malawi
Income tax Consumption tax DIFF (Consumption - Income)
Income tax as replacement tax
Consumption tax as replacement tax
Change in welfare
Change in number of
poorChange in
welfare
Change in number of
poor
1 Thailand 1.758 -0.099 0.800 -0.087
2 Vietnam 0.303 -0.013 0.280 -0.017
3 Mozambique 0.843 -0.026 -0.100 -0.006
4 Mexico 0.076 0.019 0.080 0.024
5 Brazil 1.059 0.020 0.910 0.047
6 Malawi 4.649 0.006 4.470 0.011
??
•General opinion: Welfare and poverty vary in opposite directions
•But it could be misleading to limit analysis only to welfare impacts:
•A raise in welfare could lead in poverty worsening!
•A fall in welfare could lead in poverty alleviation!
0
5
10
15
20
25
30
35
0 1 2 3 4 5
Quintiles
We
lfa
re -
Co
ns
um
pti
on
Poverty Line
15 poor people
10 non poor people
0
5
10
15
20
25
30
35
0 1 2 3 4 5
Quintiles
Wel
fare
- C
on
sum
pti
on
Poverty Line
16 poor people
9 non poor people
Drivers of the poverty impacts
• Initial distribution around the poverty line
• The initial poverty gap (intensity of poverty)
• The pattern of consumption shares: with regard to change in prices of most consumed products
• Sources of income shares: with regard to change in factor returns
• The pattern of initial distortions and the nature of the replacement tax or shock
• More efficiency is good for Welfare (and GDP) improvement
• But it is not automatically pro-poor
• This non triviality verified through tax replacement experiments justifies per se the importance to set a genuine poverty module within the model