The Marginal Cost of Public Funds and Tax Reform in Africa

Emmanuelle Auriol and Michael Walters

No 09-110, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: In this paper we propose estimates of the marginal cost of public funds (MCF) in 38 African countries. We develop a simple general equilibrium model that can handle taxes on five major tax classes, and can be calibrated with little more than national accounts data. Our base case estimate of the average MCF from marginal increases in all five tax instruments is 1.2. Focusing on the lowest cost tax instruments in each country, commonly the VAT but not always, the average MCF is 1.1. A key feature of our model is explicit recognition of the informal economy. The larger the informal economy, the higher MCFs tend to be. Extending the tax base to include sections of the informal economy by removing some tax exemptions offers the potential for a low MCF source of public funds, and a lowering of MCFs on other tax instruments.

JEL-codes: D43 H25 H26 H32 H60 (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-afr, nep-dev, nep-pbe and nep-pub
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The marginal cost of public funds and tax reform in Africa (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:22264

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