Targeting, Cascading, and Indirect Tax Design

30 Pages Posted: 15 Mar 2013

See all articles by Michael Keen

Michael Keen

International Monetary Fund (IMF) - Fiscal Affairs Department; CESifo (Center for Economic Studies and Ifo Institute); Institute for Fiscal Studies (IFS)

Date Written: February 2013

Abstract

This paper addresses two fundamental issues in indirect tax design. It first revisits the case for reduced rates on items especially important to the poor, establishing conditions under which even very crudely targeted spending measures better serve their interests. It then explores the welfare costs from cascading taxes, showing that these may actually be lower the wider the set of inputs that are taxed but, more to the point — and contrary to the common notion that “a low rate on a broad base” is always good tax policy — may plausibly be large even at a low nominal tax rate and with few stages of production.

JEL Classification: H21, H23

Suggested Citation

Keen, Michael, Targeting, Cascading, and Indirect Tax Design (February 2013). IMF Working Paper No. 13/57. Available at SSRN: https://ssrn.com/abstract=2233760

Michael Keen (Contact Author)

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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