Solving the Problem of Socially-Improving Multivariate Tax Reform with s-order Stochastic Dominance: An Application to Egyptian Consumption

Ibrahima Faro, Paul Makdissi () and Stéphane Mussard ()
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Ibrahima Faro: AIRESS, FGSES, University Mohammed VI Polytechnic, Morocco
Paul Makdissi: Department of Economics, University of Ottawa, Canada
Stéphane Mussard: Nîmes Université, Chrome, Rue du Dr Georges Salan, 30000 Nîmes

No 2604E, Working Papers from University of Ottawa, Department of Economics

Abstract: This paper integrates two pans of the operations research literature, optimal tax design and stochastic dominance analysis, to characterize indirect tax reforms that improve welfare or reduce poverty. We develop a general multivariate framework based on s-order stochastic dominance that extends existing approaches beyond the traditional two-good setting and beyond second-order dominance. The proposed method identifies budget-neutral tax reforms that are robust for broad classes of social welfare functions. Tax reforms are derived from a convex optimization problem and assessed with a wild bootstrap test adapted to dominance conditions. An application to Egyptian household data illustrates the empirical relevance of the approach and underscores the importance of higher-order dominance criteria for designing socially improving tax policies.

Keywords: Optimal taxation; Stochastic dominance; Poverty; Wild bootstrap. (search for similar items in EconPapers)
JEL-codes: D12 D31 H21 H23 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2026
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