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

Victor Lledo

No 2005/142, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; income effect; tax system; Tax reform; Fiscal adjustment; Computable general equilibrium; Brazil.; distortionary tax; tax constraint; tax payment; tax effort; tax reform proposal; tax reform gridlock; substitution effect; tax reform implementation; tax reform simulation; cascading tax; tax reform attempt; tax competition; Fiscal consolidation; Consumption taxes; Consumption (search for similar items in EconPapers)
Pages: 33
Date: 2005-07-01
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Citations: View citations in EconPapers (12)

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