Distributional Effects of Optimal Commodity Taxes Combined with Minimum Income Programs in Brazil

IPEA Discussion Paper No. 980

22 Pages Posted: 25 Nov 2003

See all articles by Ana Luiza Neves de Holanda Barbosa

Ana Luiza Neves de Holanda Barbosa

Institute of Applied Economic Research (IPEA) - Department of Macroeconomics

Eduardo P.S. Fiuza

Institute of Applied Economic Research (IPEA) - Directory of Macroeconomic Policy & Studies (DIMAC)

Marcel Scharth

Institute of Applied Economic Research (IPEA) - Department of Macroeconomics

Seki Asano

Tokyo Metropolitan University

Abstract

Commodity taxes play an important role in Brazil and raise around 60% of the total tax revenue. This heavy reliance renders commodity taxation one of the main tools available to the government for collecting revenue and securing redistribution. In fact, Brazilian income inequity is one of the highest in the world: the wealthiest 1% of population, equivalent to 1.6 million people, earn together as much as the 50% poorest, around 80 million. The purpose of this paper is a partial equilibrium numerical micro-simulation of the distributional effects of optimal commodity taxation combined with minimum income transfers made by the government to households. The approach used to measure households welfare is a money metric indirect utility or equivalent income [King (1983)], obtained from an Almost Ideal Demand System set of parameter estimates. We plug it into the equivalent variation formula to evaluate the equity effects specified in terms of the equivalent income. The data source is a 1995-1996 national household expenditure survey, though estimated parameters come from a sample comprising a 1987-1988 wave as well. We find that our proposed minimum income programs combined with selectiveness in commodity tax structure would be useful as redistribution income instrument among households in Brazil. These results can provide some valuable contribution in the context of the increasing discussion about minimum income programs in Brazil associated with demographic characteristics such as education and family size.

Keywords: Almost Ideal Demand System, Equivalent Income, Optimal Commodity Taxation, Social Welfare Function, Lump Sum Subsidy

JEL Classification: H21, H23, H31, D12, D31, D63, C33

Suggested Citation

Neves de Holanda Barbosa, Ana Luiza and Pedral Sampaio Fiuza, Eduardo and Scharth, Marcel and Asano, Seki, Distributional Effects of Optimal Commodity Taxes Combined with Minimum Income Programs in Brazil. IPEA Discussion Paper No. 980, Available at SSRN: https://ssrn.com/abstract=447000 or http://dx.doi.org/10.2139/ssrn.447000

Ana Luiza Neves de Holanda Barbosa (Contact Author)

Institute of Applied Economic Research (IPEA) - Department of Macroeconomics ( email )

SBS Ed. BNDES Quadra 1
7o. andar
Brasilia DF 7000-010
Brazil
55 21 3804-8000 (Phone)
55 21 2240-1920 (Fax)

Eduardo Pedral Sampaio Fiuza

Institute of Applied Economic Research (IPEA) - Directory of Macroeconomic Policy & Studies (DIMAC) ( email )

Av. Pres. Antonio Carlos, 51 - 17o andar
Rio de Janeiro
Brazil
+55 21 3515-8689 (Phone)
+55 21 3515-8615 (Fax)

Marcel Scharth

Institute of Applied Economic Research (IPEA) - Department of Macroeconomics ( email )

SBS Ed. BNDES Quadra 1
7o. andar
Brasilia DF 7000-010
Brazil

Seki Asano

Tokyo Metropolitan University ( email )

1-1 Minami Ohsawa, Hachioji-shi
Tokyo 192-0397
Japan
81 426-77-2311 (Phone)
81 426-77-2304 (Fax)

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