Houston, TX 77005
11:00 a.m. Friday, April 12, 2013
On Campus | Alumni
The extensive literature on comprehensive tax reform generally recommends a fiscal regime with significant reliance on consumption-based taxation, which results in more saving and investment and a higher growth rate than under a tax regime more heavily weighted toward income taxation. In the case of the typical VAT these standard results can be augmented by efficiency gains from a harmonization of VAT rates that would remove distortionary subsidies, although concern is often expressed about the potentially regressive effects of such measures. In the case of developing countries, the existence of a significant informal sector can modify these standard results by diminishing the efficiency gains from rate harmonization as resources are allocated to a less efficient informal sector. In addition, the expected regressive effects may not occur if people at the bottom of the income distribution avoid the increase of the tax burden by moving to the informal sector.