Tax reforms and network effects

Resumo

This paper investigates the effects of a tax reform that eliminates tax rate heterogeneity and cumulative taxation using a general equilibrium model calibrated to Brazil that includes multiple sectors with market power. Industries are connected through input-output linkages and changes in tax costs are not confined within
 industries. The tax reform shocks propagate through the production network, which
 may amplify or mitigate their results. 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. As expected, sectors that were heavily taxed prior
 to the reform, as well as their suppliers, benefit the most. Yet, due to propagation effects, in 10 sectors direct taxes increased but output and profits did not fall. This is because their costs were reduced as a result of lower taxes on their suppliers
 and/or increased demand. Moreover, tax distortions were leading to a shorter and
 inefficient production chain as the reform significantly changed the linkage structure
 of the economy.

Ficha do documento

Tipo

Estudo

Ano

2022

Instituição

Escola de Pós-Graduação em Economia da FGV

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Não informado

Identificador

oai:repositorio.fgv.br:10438/32766

Temas

EconomiaDesenvolvimento Econômico

Palavras-chave

EPGEReformas fiscaisReforma tributáriaReforma tributária - BrasilImpostosIndústrias - Aspectos econômicos