Indirect Tax Incidence in Madagascar: Updated Estimates Using the Input-Output Table

Cornell Food and Nutrition Policy Program Working Paper No. 147

32 Pages Posted: 22 Nov 2003

See all articles by Harivelo Rajemison

Harivelo Rajemison

Institut National de la Statistique (INSTAT)

Steven Haggblade

International Food Policy Research Institute

Stephen D. Younger

Tulane University - CEQ Institute

Date Written: September 2003

Abstract

This paper uses a new method based on both household survey data and an input-output table to assess tax incidence in Madagascar, with special emphasis on taxes that fall primarily on intermediate inputs rather than final goods and services. We use this method to analyze the impact of Madagascar's recent tax reforms. We find that the direct effects of Madagascar's changes in tax policy in the late 1990s were not regressive. Changes in indirect taxes were roughly neutral, while the increasing share of direct taxes on wages in households' overall tax burden made the system slightly more progressive. The one major tax change that was regressive was the increase in taxes on kerosene, a product with a very low income elasticity of demand.

Despite this conclusion, we do find that the burden of taxes in Madagascar shifted toward the poor. This was not due to changes in tax policy, but rather to a shift in the pattern of consumption of the poor out of lightly taxed food and informal sector items and into more heavily taxed formal sector goods. This may be a consequence of the poor's improved standard of living, which brings with it a greater (relative) share of the tax burden.

In terms of methods, we have found that using the input-output table to map taxes on intermediate inputs to final consumers makes a significant difference in our analysis of tax incidence. In particular, petroleum duties, especially those on gasoline and diesel, are significantly less progressive than the pattern of final consumption suggests. Nevertheless, taxes on gasoline and diesel (but not kerosene) remain among the most progressive taxes in Madagascar, even after accounting for the indirect effects on the prices of goods that use these products as intermediate inputs.

Keywords: Tax incidence, input-output table, Madagascar

JEL Classification: C67, O55, H22

Suggested Citation

Rajemison, Harivelo and Haggblade, Steven and Younger, Stephen D., Indirect Tax Incidence in Madagascar: Updated Estimates Using the Input-Output Table (September 2003). Cornell Food and Nutrition Policy Program Working Paper No. 147, Available at SSRN: https://ssrn.com/abstract=452120 or http://dx.doi.org/10.2139/ssrn.452120

Harivelo Rajemison

Institut National de la Statistique (INSTAT) ( email )

Antananarivo 101
Madagascar

Steven Haggblade

International Food Policy Research Institute ( email )

1201 Eye St, NW,
Lusaka, 20005
Zambia

Stephen D. Younger (Contact Author)

Tulane University - CEQ Institute ( email )

6823 St Charles Ave
New Orleans, LA 70118
United States

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