The economic effects of the elimination of taxation on investment: the case of ICMS in Brazil

Nelson Paes ()
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Nelson Paes: Universidade Federal de Pernambuco/Universidade Federal do Mato Grosso

Economics Bulletin, 2017, vol. 37, issue 2, 1055-1067

Abstract: This paper analyzes the economic impact of the exclusion of the state tax (ICMS) on investment in capital goods. Purchases of machinery and equipment in Brazil pay taxes as a consumption good and these taxes are refunded in 48 monthly installments without interest. We have used a general equilibrium model with two types of investment and disaggregation in the public sector. The results suggest a positive impact on the economy, but the loss of states revenue may reach 1.5%, which could be offset by an increase on consumption taxes. The greatest risks for this tax reform are concentrated in the short term, either by the loss of revenue, or because of a transitory drop in consumption and welfare.

Keywords: Investment; Capital Goods; Taxation; General Equilibrium Model; Revenue; Welfare. (search for similar items in EconPapers)
JEL-codes: H2 H7 (search for similar items in EconPapers)
Date: 2017-05-08
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