Tax reforms and network effects

Bruno Ricardo Delalibera, Pedro Ferreira, Diego B.P. Gomes and Johann Soares

Journal of Economic Dynamics and Control, 2024, vol. 163, issue C

Abstract: This paper investigates the effects of a tax reform that eliminates tax rate heterogeneity and cumulative taxation using a general equilibrium model with multiple sectors with market power. Industries are connected through input-output linkages, and changes in taxation are not confined within industries. We calibrate the model to Brazil, a country with a highly distorted tax system. The revenue-neutral tax reform generates gains of 7.9% of GDP and 1.8% of welfare. Just eliminating VAT rate dispersion leads to a 6.0% increase in GDP. Due to propagation effects, in 10 sectors direct taxes increased but output and profits did not fall.

Keywords: Tax distortions; Input-output linkages; Shock propagation; VAT dispersion (search for similar items in EconPapers)
JEL-codes: E01 E1 E23 E62 H25 H32 H41 O11 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: Tax Reforms and Network Effects (2023)
Working Paper: Tax Reforms and Network Effects (2023)
Working Paper: Tax reforms and network effects (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:163:y:2024:i:c:s016518892400054x

DOI: 10.1016/j.jedc.2024.104862

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