The Macroeconomic and Distributional Implications of Fiscal Consolidations in Low-income Countries
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Summary:
We quantitatively investigate the macroeconomic and distributional impacts of fiscal consolidations in low-income countries (LICs) through value added tax (VAT), personal income tax (PIT), and corporate income tax (CIT). We extend the standard heterogeneous agents incomplete markets model by including multiple sectors and rural-urban distinction to capture salient features of LICs. We find that overall, VAT has the least efficiency costs but is highly regressive, while PIT impacts the economy in the opposite way with CIT staying in between. Cash transfers targeting rural households mitigate the negative distributional impacts of VAT most effectively, while public investment leads to little redistribution.
Series:
Working Paper No. 18/146
Subject:
Corporate income taxes Fiscal consolidation Income distribution Low-income developing countries Personal income taxes Poverty and inequality Value added taxes
English
Publication Date:
June 13, 2018
ISBN/ISSN:
9781484363034/1018-5941
Stock No:
WPIEA2018146
Price:
$18.00 (Academic Rate:$18.00)
Format:
Paper
Pages:
36
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