Consumer Price Neutral Tax Reform with Costly Transfers

17 Pages Posted: 15 Feb 2010

See all articles by M. Shahe Emran

M. Shahe Emran

George Washington University - Department of Economics

Date Written: February 14, 2010

Abstract

Recent work on indirect tax reform shows that it is both welfare-enhancing and revenue-raising to increase the consumption taxes in a way to offset the effects of a reduction in tariffs on the consumer prices. We show that such a win-win outcome from a radial or selective reform is possible only under very restrictive conditions. The results are, in general, sensitive to the assumption regarding costs of transfers. We provide necessary and sufficient conditions for a win-win reform irrespective of costs of transfers. However, they seem to be of limited applicability for designing tax policy in developing countries.

Keywords: Tax Reform, Tariff Reform, Costly Transfer, Welfare, Government Revenue

JEL Classification: H20, F13

Suggested Citation

Emran, M. Shahe, Consumer Price Neutral Tax Reform with Costly Transfers (February 14, 2010). Available at SSRN: https://ssrn.com/abstract=1552841 or http://dx.doi.org/10.2139/ssrn.1552841

M. Shahe Emran (Contact Author)

George Washington University - Department of Economics ( email )

2115 G Street NW
302 Monroe Hall
Washington, DC 20052
United States

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