The Marginal Cost of Public Funds and Tax Reform in Africa

Auriol, Emmanuelle and Walters, Michael (2009) The Marginal Cost of Public Funds and Tax Reform in Africa. TSE Working Paper, n. 09-110

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In this paper we propose estimates of the marginal cost of public
funds (MCF) in 38 African countries. We develop a simple general equilibrium model that can handle taxes on five major tax classes, and can be calibrated with little more than national accounts data. Our base case estimate of the average MCF from marginal increases in all five tax instruments is 1.2. Focusing on the lowest cost tax instruments in each country, commonly the VAT but not always, the average MCF is 1.1. A key feature of our model is explicit recognition of the informal economy. The larger the informal economy, the higher MCFs tend to be. Extending the tax base to include sections of the informal economy by removing some tax exemptions offers the potential for a low MCF source of public funds, and a lowering of MCFs on other tax instruments.

Item Type: Monograph (Working Paper)
Language: English
Date: November 2009
JEL Classification: D43 - Oligopoly and Other Forms of Market Imperfection
H25 - Business Taxes and Subsidies
H26 - Tax Evasion
H32 - Firm
H60 - General
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 18 Jan 2012 06:01
Last Modified: 02 Oct 2019 23:00
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