Poverty-Decreasing Indirect Tax Reforms: Evidence from Tunisia

Abstract:     
This paper suggests a methodology to identify socially-desirable directions for poverty-alleviating tax reforms. The cost-benefit ratio of increasing any commodity-tax rate is derived from the minimization of a poverty measure subject to a revenue requirement for the government. Further, to avoid the arbitrariness of choosing a poverty line and a poverty measure, the search for a poverty-reducing tax reform is done robustly, among other things by increasing progressively the ethical content of a pre-defined class of poverty measures. The methodology is illustrated using data from Tunisia. The results suggest that poverty could be dropped for a large class of poverty indices and a wide range of poverty lines by raising - at constant fiscal revenue - the subsidy rate on hard wheat and mixed oils and by decreasing the one on sugar and milk.

Number of Pages in PDF File: 25

Keywords: Poverty alleviation, Indirect taxation, Targeting, Tunisia

JEL Classification: D12, D63, H53, I32, I38

working papers series