The marginal cost of public funds and tax reform in Africa

Emmanuelle Auriol and Michael Warlters

Journal of Development Economics, 2012, vol. 97, issue 1, 58-72

Abstract: In this paper we propose estimates of the marginal cost of public funds (MCF) in 38 African countries. We develop a simple general equilibrium model that can handle taxes on five major tax classes, and can be calibrated with little more than national accounts data. A key feature of our model is the explicit recognition of the informal economy. Our base case estimate of the average MCF from marginal increases in all five tax instruments is 1.2. Focusing on the lowest cost tax instruments in each country, commonly the VAT but not always, the average MCF is 1.1. Finally extending the tax base to include sections of the informal economy by removing some tax exemptions offers the potential for a low MCF source of public funds, and a lowering of MCFs on other tax instruments.

Keywords: Marginal cost of public fund; Tax reform; Developing countries; Africa (search for similar items in EconPapers)
JEL-codes: D43 H25 H26 H32 H60 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (81)

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Working Paper: The Marginal Cost of Public Funds and Tax Reform in Africa (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:97:y:2012:i:1:p:58-72

DOI: 10.1016/j.jdeveco.2011.01.003

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