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GTAP Resources: Resource Display

GTAP Resource #1554

"An Analysis of South Africa's Value Added Tax"
by Go, Delfin, Marna Kearney, Sherman Robinson and Karen Thierfelder

In this paper, we analyze the revenue, welfare, and income distribution effects of South Africa’s value added tax. We use a computable general equilibrium (CGE) model of South Africa, with data for 2001. We extend the model to include VAT payments with rebates on intermediate inputs. There are 10 households according to income deciles. We allow for unemployment in the semi-skilled and unskilled labor categories. First we describe the effects of removing the VAT and replacing the revenue by a proportional increase in direct taxes. Then we consider the effect alternative statutory rates have on the regressiveness of the VAT. Finally, we describe alternative tax structures: (1) remove the VAT on agriculture and food and (2) remove tariffs and replace lost government tax revenue with a uniform change in the value added tax rates.

We use a variety of measures to describe the effect of a VAT on welfare. We report the regressiveness of the VAT, the progressiveness of the complete tax system, income distribution, the equivalent variation, and the changes in consumption and the cost of living. We also show the effects of changes in the tax system on total government revenue, the components of government revenue, and the structure of the economy.

Our results show that VAT reduces the overall progressiveness of the tax structure. VAT also reduces the overall welfare of low-income households

Resource Details (Export Citation) GTAP Keywords
Category: 2004 Conference Paper
Status: Published
By/In: Presented at the 7th Annual Conference on Global Economic Analysis, Washington DC, USA
Date: 2004
Created: Thierfelder, K. (5/7/2004)
Updated: Thierfelder, K. (5/7/2004)
Visits: 4,064
No keywords have been specified.

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