Tax Reforms and Network Effects

Bruno Ricardo Delalibera, Pedro Ferreira, Diego Gomes () and Johann Soares ()
Additional contact information
Diego Gomes: IMF
Johann Soares: EPGE/FGV

No 2023/456, UB School of Economics Working Papers from University of Barcelona School of Economics

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 7.8% of GDP and 1.9% of welfare. Just eliminating VAT rate dispersion leads to a 5.9% 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: F10 F12 F16 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2023
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Related works:
Journal Article: Tax reforms and network effects (2024)
Working Paper: Tax Reforms and Network Effects (2023)
Working Paper: Tax reforms and network effects (2022)
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