 The Macroeconomic Benefits of Tax Enforcement in PakistanEthan Ilzetzki and David Lagakos Working Papers from eSocialSciences Abstract: The benefits of improved tax enforcement in Pakistan through simulations of a model of the Pakistani economy is studied. We begin by documenting that the effective tax rate facing firms is increasing in firm size, with firms in the modern sector facing tax rates nearly ten percentage points higher than in the traditional sector. In addition, larger firms face substantially higher tax rates than small firms. Effective tax rates range from 5% for smaller firms to 10% for middle-sized firms and 15% for the largest firms. We then build a two-sector (modern and traditional) model of the Pakistani economy. Simulations of the model show that improvements in tax enforcement could increase revenues (by 8% in our middle scenario) but also reduce informality (by 3.3 percentage points) and increase GDP (by nearly 2%). We contrast this with a one percentage point increase in the tax rate, which increases tax revenues, but reduces GDP and increases the rate of informality Keywords: Pakistan; Tax enforcement; Macroeconomics; growth rates; infrastructure; expenditure; social programs; revenues; manufacturing; formal sector; agriculture; trade; productivity; traditional sector (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ess:wpaper:id:12130 Access Statistics for this paper More papers in Working Papers from eSocialSciences |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.