Tax Systems Under Fiscal Adjustment: A Dynamic CGE Analysis of the Brazilian Tax Reform

34 Pages Posted: 3 Mar 2006

See all articles by Victor Lledo

Victor Lledo

International Monetary Fund (IMF)

Date Written: July 2005

Abstract

This paper uses a dynamic computable general equilibrium model (CGE) to analyze the macroeconomic and redistributive effects of replacing turnover and financial transaction taxes in Brazil by a consumption tax. In order to approximate Brazil`s compliance with its fiscal adjustment targets, the proposed reform is subject to a non increasing path for the level of public debt. Despite an increase in the average consumption tax rate in the first years after the reform, a majority of individuals experienced an increase in their lifetime welfare. This result rejects the hypothesis that the on-going fiscal adjustment effort carried on by the Brazilian government was an obstacle to the implementation of a more efficient tax system.

Keywords: Tax reform, Fiscal adjustment, Computable general equilibrium, Brazil

JEL Classification: C68, E60, H20, H77

Suggested Citation

Lledo, Victor, Tax Systems Under Fiscal Adjustment: A Dynamic CGE Analysis of the Brazilian Tax Reform (July 2005). IMF Working Paper, Vol. , pp. 1-34, 2005. Available at SSRN: https://ssrn.com/abstract=888011

Victor Lledo (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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