Tax Systems Under Fiscal Adjustment: A Dynamic CGE Analysis of the Brazilian Tax Reform

Author/Editor:

Victor Duarte Lledo

Publication Date:

July 1, 2005

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper uses a dynamic computable general equilibrium model (CGE) to analyze the macroeconomic and redistributive effects of replacing turnover and financial transaction taxes in Brazil by a consumption tax. In order to approximate Brazil's compliance with its fiscal adjustment targets, the proposed reform is subject to a non increasing path for the level of public debt. Despite an increase in the average consumption tax rate in the first years after the reform, a majority of individuals experienced an increase in their lifetime welfare. This result rejects the hypothesis that the on-going fiscal adjustment effort carried on by the Brazilian government was an obstacle to the implementation of a more efficient tax system.

Series:

Working Paper No. 2005/142

Subject:

English

Publication Date:

July 1, 2005

ISBN/ISSN:

9781451861617/1018-5941

Stock No:

WPIEA2005142

Pages:

33

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