Macroeconomic and welfare effects of tax reforms in emerging economies: A case study of Morocco

Hamed Ghiaie, Gregory Auclair and Jean Frederic Noah Ndela Ntsama

Journal of Policy Modeling, 2019, vol. 41, issue 4, 666-699

Abstract: This paper assesses the macroeconomic and welfare effects of fundamental tax reforms in an emerging/developing economy. We develop a dynamic general equilibrium model with structural and institutional characteristics of non-oil emerging and developing economies and apply the model to Morocco. The model’s simulations suggest that tax reforms imply complex trade-off between growth, government revenue, and equity. A comprehensive approach associated with better targeted social programs, broadens the tax base, removes tax distorsions, better distributes the tax burden, and mitigates adverse distributional effects (that is improves welfare) by making the tax system more progressive and reducing inequalities. For Morocco, a comprehensive tax reform package would involve (i) reducing tax exemptions, (ii) a broader-based property tax, (iii) a lower corporate tax rate, (iv) aligning the VAT rate on exempted goods and services to the standard rates, and (v) a better targeted social safety net. The paper indicates that such a reform package is growth-friendly, broad-based, progressive and has implications for existing gender biases.

Keywords: Tax reform; Macro-structural policies; Distributional effects; Dynamic general equilibrium; Welfare (search for similar items in EconPapers)
JEL-codes: E62 F41 H20 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:41:y:2019:i:4:p:666-699

DOI: 10.1016/j.jpolmod.2019.02.005

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