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A recursive dynamic computable general equilibrium analysis of value-added tax policy options for Nigeria

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  • Alarudeen Aminu

    (University of Ibadan)

Abstract

The study investigates how government can implement an increase in the rate of value-added tax (VAT) to ensure that the final rate of 15% is achieved in a way that satisfies the public (households and business community) and also ensures maximum revenue generation for the government. The nation’s VAT rate is presently at 5%. A recursive dynamic CGE model is used to address the study’s objective, and the model is solved and simulated for 10 years. It is found that the best policy option is to increase the rate by 2.5% yearly for the next 4 years. The option delivers the best outcomes for real GDP (and its growth), investment, intermediate imports, government expenditure and household consumption when compared to alternative options that require 5% increase (implemented in the first and fourth years) and 10% increment (implemented in the first year). Government revenue (divided into VAT, tax and total revenue) registers the highest percentage changes under 2.5% VAT policy in the medium term (6–10 years).

Suggested Citation

  • Alarudeen Aminu, 2019. "A recursive dynamic computable general equilibrium analysis of value-added tax policy options for Nigeria," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-38, December.
    • Handle: RePEc:spr:jecstr:v:8:y:2019:i:1:d:10.1186_s40008-019-0152-4
    DOI: 10.1186/s40008-019-0152-4
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    References listed on IDEAS

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    1. Jean L. Erero, 2015. "Effects of Increases in Value Added Tax: A Dynamic CGE Approach," Working Papers 558, Economic Research Southern Africa.
    2. Francesco Felici & Maria Gesualdo, 2014. "ORANI-IT: a computable general equilibrium model of Italy," Working Papers 7, Department of the Treasury, Ministry of the Economy and of Finance.
    3. Felici Francesco & Maria Gesualdo, 2014. "Fiscal extension to ORANI-IT: a computable general equilibrium model for Italy," Working Papers 8, Department of the Treasury, Ministry of the Economy and of Finance.
    4. Brita Bye & Birger Strøm & Turid Åvitsland, 2003. "Welfare effects of VAT reforms: A general equilibrium analysis," Discussion Papers 343, Statistics Norway, Research Department.
    5. Giesecke, James A. & Nhi, Tran Hoang, 2010. "Modelling value-added tax in the presence of multi-production and differentiated exemptions," Journal of Asian Economics, Elsevier, vol. 21(2), pages 156-173, April.
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    Cited by:

    1. Umar Bambale, Ibrahim & Sanusi Rafindadi, Aliyu & Usman Bello, Adamu, 2022. "The Nigerian Fiscal Stance And Macroeconomic Performance: A Computable General Equilibrium (Cge) Analysis," Ilorin Journal of Economic Policy, Department of Economics, University of Ilorin, vol. 9(1), pages 57-68, June.
    2. Pierre N. Mamboundou, 2022. "Is the value added tax reform a source of food insecurity and food poverty? The Burkina Faso case," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(7), pages 1334-1346, October.
    3. Umar Bambale, Ibrahim & Sanusi Rafindadi, Aliyu & Usman Bello, Adamu, 2022. "Household Welfare And Poverty Impact Of Domestic Revenue Mobilisation Strategies In Nigeria: A Computable General Equilibrium (Cge) Analysis," Ilorin Journal of Economic Policy, Department of Economics, University of Ilorin, vol. 9(2), pages 1-13, June.

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    More about this item

    Keywords

    Computable general equilibrium; Value-added tax; Tax policy options; Government revenue; Welfare;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D6 - Microeconomics - - Welfare Economics
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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