The replacement of payroll tax by a tax on revenues: A study of sectorial impacts on the Brazilian economy

Wilton Bernardino da Silva, Nelson Leitão Paes and Raydonal Ospina
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Wilton Bernardino da Silva: Departamento de Economia, Universidade Federal de Pernambuco, Brasil
Nelson Leitão Paes: Departamento de Economia, Universidade Federal de Pernambuco, Brasil
Raydonal Ospina: Departamento de Estatística, Universidade Federal de Pernambuco, Brasil

Economia, 2015, vol. 16, issue 1, 46_59

Abstract: A topic of current research in discussion about the Brazilian economy is the exemption from payroll taxes, which aims to stimulate competitiveness of the firms, boosting economic growth. This topic was introduced in Brazil by new laws that proposed replacing the payroll tax with a new tax on revenues. The payroll tax rate of 20% was replaced by a tax rate of 1% or 2% on revenue. This change has been applied primarily in labor-intensive economic sectors. In this paper, a neoclassical model was used to evaluate some sectoral impacts of these tax changes. The results show positive effects of this reform, among them, the increase in aggregate consumption and capital stock. Employment also grows in the labor-intensive sector. However, under a government revenue neutral scenario, these effects are almost completely lost, which shows some evidence about the low efficiency of these reforms....

Keywords: Neoclassical models; Tax reforms; Payroll tax exemption (search for similar items in EconPapers)
JEL-codes: C61 C68 E62 (search for similar items in EconPapers)
Date: 2015
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