IDEAS home Printed from https://ideas.repec.org/a/eee/jpolmo/v44y2022i5p903-919.html
   My bibliography  Save this article

Reducing the regressivity of indirect taxation in Brazil through a personalized value-added tax

Author

Listed:
  • Oliver, Xisco
  • Encabo, Isabel
  • Padilha, Giovanni
  • Piccoli, Luca

Abstract

ICMS is a value-added tax and the most important tax in Brazil in terms of revenue. This paper investigates the technical feasibility and impact of a reform to ICMS. The aim of the reform is twofold, on the one hand, to modernize the tax and redress some current flaws in terms of neutrality, simplicity and transparency and, on the other, to reduce its regressivity, increase redistribution, reduce poverty and impact positively on social welfare (without a loss in the tax revenue). A static behavioral microsimulation model was purpose-constructed to study the proposed reform. The new tax simplifies the current system by introducing a single general tax rate and an increased rate for alcoholic beverages and tobacco, without exemptions, combining this with a total or partial refund for the poorest families. The empirical results show that the new tax is superior to the current one, both in terms of efficiency and equity.

Suggested Citation

  • Oliver, Xisco & Encabo, Isabel & Padilha, Giovanni & Piccoli, Luca, 2022. "Reducing the regressivity of indirect taxation in Brazil through a personalized value-added tax," Journal of Policy Modeling, Elsevier, vol. 44(5), pages 903-919.
    • Handle: RePEc:eee:jpolmo:v:44:y:2022:i:5:p:903-919
    DOI: 10.1016/j.jpolmod.2022.09.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0161893822000564
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jpolmod.2022.09.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. André Decoster & Jason Loughrey & Cathal O'Donoghue & Dirk Verwerft, 2010. "How regressive are indirect taxes? A microsimulation analysis for five European countries," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 29(2), pages 326-350.
    2. Sean Higgins & Claudiney Pereira, 2013. "The effects of Brazil's high taxation and social spending on the distribution of household income," Commitment to Equity (CEQ) Working Paper Series 07, Tulane University, Department of Economics, revised May 2013.
    3. Fernando Gaiger Silveira & Fernando Rezende & Jose Roberto Afonso & Jhonatan Ferreira, 2013. "Fiscal Equity: Distributional Impacts of Taxation and Social Spending in Brazil," Working Papers 115, International Policy Centre for Inclusive Growth.
    4. Marcelo Neri & Rozane Siqueira & José Ricardo Nogueira & Manuel Osorio, 2018. "Fiscal redistribution in Brazil: Dynamic microsimulation, 2003-15," WIDER Working Paper Series wp-2018-136, World Institute for Development Economic Research (UNU-WIDER).
    5. John Creedy, 1998. "Are Consumption Taxes Regressive?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 31(2), pages 107-116, June.
    6. Funke, Michael & Terasa, Raphael, 2022. "Has Germany’s temporary VAT rates cut as part of the COVID-19 fiscal stimulus boosted growth?," Journal of Policy Modeling, Elsevier, vol. 44(2), pages 450-473.
    7. Sen, Amartya, 1973. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198281931.
    8. Majumder, Amita & Ray, Ranjan & Santra, Sattwik, 2021. "Should commodity tax rates be uniform across regions in a heterogeneous country? Evidence from India," Journal of Policy Modeling, Elsevier, vol. 43(6), pages 1310-1331.
    9. Nugroho, Anda & Amir, Hidayat & Maududy, Irsyan & Marlina, Irma, 2021. "Poverty eradication programs in Indonesia: Progress, challenges and reforms," Journal of Policy Modeling, Elsevier, vol. 43(6), pages 1204-1224.
    10. Sean Higgins & Claudiney Pereira, 2013. "The effects of Brazil's high taxation and social spending on the distribution of household income," Commitment to Equity (CEQ) Working Paper Series 1307, Tulane University, Department of Economics, revised May 2013.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lapinskas, Arunas & Makhova, Larisa & Haikin, Mark & Troyanskaya, Marija & Mutalimov, Verdi, 2023. "Longevity of EU membership and VAT practices: Dependencies, Contradictions And Implications," Journal of Policy Modeling, Elsevier, vol. 45(3), pages 630-643.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marcelo Neri & Rozane Siqueira & José Ricardo Nogueira & Manuel Osorio, 2018. "Fiscal redistribution in Brazil: Dynamic microsimulation, 2003-15," WIDER Working Paper Series wp-2018-136, World Institute for Development Economic Research (UNU-WIDER).
    2. Marcelo Neri & Rozane Siqueira & José Nogueira & Manuel Osorio, 2018. "Fiscal redistribution in Brazil: Dynamic microsimulation, 2003–15," WIDER Working Paper Series 136, World Institute for Development Economic Research (UNU-WIDER).
    3. Nora Lustig & Florencia Amábile & Marisa Bucheli & George Gray Molina & Sean Higgins & Miguel Jaramillo & Wilson Jiménez Pozo & Veronica Paz Arauco & Claudiney Pereira & Carola Pessino & Máximo Rossi , 2014. "El impacto del sistema tributario y del gasto social sobre la desigualdad y la pobreza en Argentina, Bolivia, Brasil, México, Perú y Uruguay: Un panorama general," Commitment to Equity (CEQ) Working Paper Series 1313S, Tulane University, Department of Economics.
    4. Nora Lustig & Carola Pessino, 2013. "Social spending and income redistribution in Argentina during the 2000s: The rising noncontributory pensions," Commitment to Equity (CEQ) Working Paper Series 05, Tulane University, Department of Economics, revised Aug 2013.
    5. Higgins, Sean & Lustig, Nora, 2016. "Can a poverty-reducing and progressive tax and transfer system hurt the poor?," Journal of Development Economics, Elsevier, vol. 122(C), pages 63-75.
    6. Gabriel Burdin & Fernando Esponda & Andrea Vigorito, 2004. "Inequality and Top Income in Uruguay: A Comparison between Household Surveys and Income Tax Micro-data," Working Papers halshs-02654095, HAL.
    7. Ali Enami & Ugo Gentilini & Patricio Larroulet & Nora Lustig & Emma Monsalve & Siyu Quan & Jamele Rigolini, 2023. "Universal Basic Income Programs: How Much Would Taxes Need to Rise? Evidence for Brazil, Chile, India, Russia, and South Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 59(9), pages 1443-1463, September.
    8. Mukherjee, Sacchidananda, 2023. "Distributional Impact of Indian GST," Working Papers 23/403, National Institute of Public Finance and Policy.
    9. Sean Higgins & Nora Lustig & Whitney Ruble & Timothy M. Smeeding, 2016. "Comparing the Incidence of Taxes and Social Spending in Brazil and the United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(S1), pages 22-46, August.
    10. Nora Lustig & Florencia Amábile & Marisa Bucheli & George Gray Molina & Sean Higgins & Miguel Jaramillo & Wilson Jiménez Pozo & Veronica Paz Arauco & Claudiney Pereira & Carola Pessino & Máximo Rossi , 2014. "El impacto del sistema tributario y del gasto social sobre la desigualdad y la pobreza en Argentina, Bolivia, Brasil, México, Perú y Uruguay: Un panorama general," Commitment to Equity (CEQ) Working Paper Series 13S, Tulane University, Department of Economics.
    11. Francesca Gastaldi & Paolo Liberati & Elena Pisano & Simone Tedeschi, 2017. "Regressivity-Reducing VAT Reforms," International Journal of Microsimulation, International Microsimulation Association, vol. 10(1), pages 39-72.
    12. Nora Lustig, 2016. "Commitment to Equity Handbook. A Guide to Estimating the Impact of Fiscal Policy on Inequality and Poverty," Commitment to Equity (CEQ) Working Paper Series 1301, Tulane University, Department of Economics.
    13. Facundo Alveredo & Juliana Londoño Vélez, 2013. "High incomes and personal taxation in a developing economy: Colombia 1993-2010," Commitment to Equity (CEQ) Working Paper Series 1312, Tulane University, Department of Economics.
    14. Nora Lustig & Florencia Amábile & Marisa Bucheli & George Gray Molina & Sean Higgins & Miguel Jaramillo & Wilson Jiménez Pozo & Veronica Paz Arauco & Claudiney Pereira & Carola Pessino & Máximo Rossi , 2013. "The impact of taxes and social spending on inequality and poverty in Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay: An overview," Working Papers 315, ECINEQ, Society for the Study of Economic Inequality.
    15. Nora Lustig, 2015. "Fiscal Policy and Ethno-Racial Inequality in Bolivia, Brazil, Guatemala and Uruguay," Commitment to Equity (CEQ) Working Paper Series 22, Tulane University, Department of Economics.
    16. Pablo Sauma & Juan Diego Trejos, 2014. "Universidad de Costa Rica," Commitment to Equity (CEQ) Working Paper Series 1318E, Tulane University, Department of Economics.
    17. Cabrera, Maynor & Lustig, Nora & Morán, Hilcías E., 2015. "Fiscal Policy, Inequality, and the Ethnic Divide in Guatemala," World Development, Elsevier, vol. 76(C), pages 263-279.
    18. Nora Lustig, 2015. "The Redistributive Impactive of Government Spending on Education and Health Evidence from Thirteen Developing Countries in the Commitment to Equity Project," Commitment to Equity (CEQ) Working Paper Series 30, Tulane University, Department of Economics.
    19. Pablo Sauma & Juan Diego Trejos, 2014. "Universidad de Costa Rica," Commitment to Equity (CEQ) Working Paper Series 18E, Tulane University, Department of Economics.
    20. repec:tul:ceqwps:1314 is not listed on IDEAS
    21. Marisa Bucheli, 2014. "Public Transfers and Poverty Reduction: an Evaluation of Program Contribution to the Exit Rate from Poverty of Children and the Elderly," Documentos de Trabajo (working papers) 0914, Department of Economics - dECON.

    More about this item

    Keywords

    ICMS; Efficiency and redistribution; Behavioral microsimulation model; Almost-ideal demand system; Indirect taxation;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jpolmo:v:44:y:2022:i:5:p:903-919. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505735 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.