Informality, Consumption Taxes and Redistribution

Bachas, Pierre ; Gadenne, Lucie ; Jensen, Anders

World Bank, Washington, DC

关键词: CONSUMPTION TAX;    INFORMAL SECTOR;    TAXATION;    INCOME DISTRIBUTION;    INEQUALITY;   

DOI  :  10.1596/1813-9450-9267
RP-ID  :  WPS9267

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Can consumption taxes reduce inequalityin developing countries? This paper combines householdexpenditure data from 31 countries with theory to shed newlight on the redistributive potential and optimal design ofconsumption taxes. It uses the place of purchase of eachexpenditure to proxy for informal (untaxed) consumptionwhich enables characterizing the informality Engel curve.The analysis finds that the budget share spent in theinformal sector steeply declines with income, in allcountries. The informal sector thus makes consumption taxesprogressive: households in the richest quintile face aneffective tax rate that is twice that of the poorestquintile. The paper extends the standard optimal commoditytax model to allow for informal consumption and calibratesit to the data to study the effects of different taxpolicies on inequality. Contrary to consensus, the findingsshow that consumption taxes are redistributive, loweringinequality by as much as personal income taxes. Theseeffects are primarily driven by the shape of the informalityEngel curve. Taking informality into account, commonly usedredistributive policies, such as reduced tax rates onnecessities, have a limited impact on inequality. Inparticular, subsidizing food cannot be justified on equityor efficiency grounds in several poor countries.