General Equilibrium Impacts of VAT and Corporate Income Tax in Thailand

Chonlakan Benjasak and Keshab Bhattarai
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Chonlakan Benjasak: Law and Politics, University of Hull

International Advances in Economic Research, 2019, vol. 25, issue 3, No 2, 263-276

Abstract: Abstract In this paper, a computable general equilibrium model of Thailand is constructed in order to assess economy-wide impacts of reforms in the value added tax (VAT) and corporate income tax (CIT) on welfare and reallocation of resources across production sectors in the Thai economy. The model was calibrated to the micro-consistent benchmark data set contained in the Input-Output Table 2010 published by the Office of National Economics and Social Development Board with restructuring into 18 sectors. Findings reveal that aggregate net changes in welfare from a 10% VAT rate are better than from a 0% VAT. Thus, increasing VAT from 7 to 10% is a desirable policy action on the basis of economy-wide welfare analysis because utility generated from public services for the households more than compensates their loss in utility due to higher taxes. On a net welfare basis, decreasing the CIT rate from 30 to 20% is more preferable policy than reducing it to 23%. This model-based analysis is a unique contribution to the current literature on impacts of VAT and CIT in the Thai economy. Further scope remains for full impact analysis of comprehensive reforms such as the goods and services tax, with a dynamic model and many households.

Keywords: Tax policy; VAT; Corporate income tax; Thailand’s CGE model (search for similar items in EconPapers)
JEL-codes: E62 O52 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s11294-019-09742-7

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