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How should an optimal tax system react to a crisis?: Simulation results for Zambia

Author

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  • Dingquan Miao
  • Ravi Kanbur
  • Jukka Pirttilä

Abstract

The COVID-19 pandemic increased public debt and changed the income distribution in many countries. We use a numerical simulation approach to derive optimal nonlinear marginal tax rates for the pre-crisis and crisis periods. We contribute to the literature by examining optimal tax rates numerically for a developing country and by investigating how the tax rates should be changed as a response to a crisis. Our results indicate that the actual extent of redistribution, especially via direct transfers to low-income individuals, should be considerably higher than what the present system offers.

Suggested Citation

  • Dingquan Miao & Ravi Kanbur & Jukka Pirttilä, 2023. "How should an optimal tax system react to a crisis?: Simulation results for Zambia," WIDER Working Paper Series wp-2023-149, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:wp-2023-149
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    Keywords

    COVID-19; Pandemic; Optimal tax; Income tax; Simulation; Welfare impact;
    All these keywords.

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