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The Poverty and Equity Implications of A Rise in the Value Added Tax: A Microeconomic Simulation for Lebanon

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  • Nisreen Salti

    (American University of Beirut)

  • Jad Chaaban

Abstract

This paper examines the impact of a rise in the Value Added Tax (VAT) on poverty and inequality in Lebanon. To this end, the paper develops an empirical model based on consumer demand theory and uses only household survey data on expenditures and spatial price indexes. The simulation results — using an Almost Ideal Demand System — show that the projected VAT rate increases will have a limited impact on extreme poverty, due to the mostly progressive nature of current exemptions. However, overall poverty will be significantly affected, as households just above the national poverty line may fall into poverty as a result.

Suggested Citation

  • Nisreen Salti & Jad Chaaban, 2009. "The Poverty and Equity Implications of A Rise in the Value Added Tax: A Microeconomic Simulation for Lebanon," Working Papers 483, Economic Research Forum, revised Apr 2009.
    • Handle: RePEc:erg:wpaper:483
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    References listed on IDEAS

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    1. Francois Bourguignon & Luiz A. Pereira da Silva, 2003. "The Impact of Economic Policies on Poverty and Income Distribution : Evaluation Techniques and Tools," World Bank Publications - Books, The World Bank Group, number 15090.
    2. Heba El Laithy & Khalid Abu-Ismail & Kamal Hamdan, 2008. "Poverty, Growth and Income Distribution in Lebanon," Research Report 13, International Policy Centre for Inclusive Growth.
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    5. Jad Chaaban & Alban Thomas, 2008. "A Structural Model for Evaluating the Sector-specific Impacts of Preferential Trade Agreements," Journal of Industry, Competition and Trade, Springer, vol. 8(1), pages 73-88, March.
    6. Juan Prieto-Rodriguez & Desiderio Romero-Jordán & José Felix Sanz-Sanz, 2005. "Is a tax cut on cultural goods consumption actually desirable? A microsimulation analysis applied to Spain," Fiscal Studies, Institute for Fiscal Studies, vol. 26(4), pages 549-575, December.
    7. Mr. Howard Handy, 1998. "Egypt: Beyond Stabilization. Toward a Dynamic Market Economy," IMF Occasional Papers 1998/008, International Monetary Fund.
    8. Juan Prieto-Rodriguez & Desiderio Romero-Jordan & Jose Felix Sanz-Sanz, 2004. "Is A Tax Cut On Cultural Goods Consumption Actually Desirable?:A Microsimulation Analysis," Public Economics 0402001, University Library of Munich, Germany, revised 06 Feb 2004.
    9. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
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    Cited by:

    1. Makdissi Paul & Seif Edine Mohamad, 2020. "Is the Elimination of Food Subsidies the Right Policy to Address Lebanon’s Public Finance Crisis?," Review of Middle East Economics and Finance, De Gruyter, vol. 16(2), pages 1-17, August.
    2. Yaru, Mohammed Aminu & Adisa-Ohiaka, Ubaydah, 2022. "Indirect Taxation and Poverty in Sub-Saharan Africa: An Empirical Evidence from Panel Data Analysis," African Journal of Economic Review, African Journal of Economic Review, vol. 10(5), December.
    3. Molnár, György & Cseres-Gergely, Zsombor & Szabó, Tibor, 2016. "Pénzt vagy életet?. Empirikus eredmények néhány gazdaságpolitikai beavatkozás heterogén jóléti hatásairól [For money or for life?. Empirical findings on the heterogenous welfare effects of some eco," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 901-943.
    4. Javier García-Enríquez & Cruz A. Echevarría, 2016. "Consistent Estimation of a Censored Demand System and Welfare Analysis: The 2012 VAT Reform in Spain," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(2), pages 324-347, June.
    5. Zsombor Cseres-Gergely & Gyorgy Molnar & Tibor Szabo, 2017. "Expenditure responses, policy interventions and heterogeneous welfare effects in Hungary during the 2000s," CERS-IE WORKING PAPERS 1704, Institute of Economics, Centre for Economic and Regional Studies.
    6. Warwick, Ross & Harris, Tom & Phillips, David & Goldman, Maya & Jellema, Jon & Inchauste, Gabriela & Goraus-Tańska, Karolina, 2022. "The redistributive power of cash transfers vs VAT exemptions: A multi-country study," World Development, Elsevier, vol. 151(C).

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