ALMOST IDEAL DEMAND SYSTEM AND UNIFORM TAXATION IN PAKISTAN: ECONOMETRIC EVIDENCES FOR CONSUMER GOODS IN PAKISTAN, 1984-2008

Eatzat Ahmed, Abdul Jalil and Muhammad Idrees

Applied Econometrics and International Development, 2013, vol. 13, issue 2, 207-216

Abstract: Two main tasks have been pursued in this article. First, we estimate demand system for six composite goods by employing Almost Ideal Demand System for Pakistan. Second we analyze the welfare implications of tax reforms that replace the existing tax structure by uniform taxes on all goods. The parameter estimates of the model satisfied the theoretical restrictions. In particular all expenditure elasticities turned out to be positive and all the own price elasticities are negative with reasonable magnitudes. It has been found that the welfare gain of shifting to uniformity of tax rates from the existing tax structure is substantial. It is equivalent to 10% reduction in total expenditure while the total tax revenue stayed the same. In other words consumers would spend 10% less while the total welfare is kept constant at the existing level.

Keywords: Uniform Tax; Household Demand; AIDS Demand System and Pakistan. (search for similar items in EconPapers)
JEL-codes: C33 D12 H21 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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