The Macroeconomic and Distributional Implications of Fiscal Consolidations in Low-income Countries

Download or read book The Macroeconomic and Distributional Implications of Fiscal Consolidations in Low-income Countries written by Adrian Peralta-Alva and published by International Monetary Fund. This book was released on 2018-06-13 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We quantitatively investigate the macroeconomic and distributional impacts of fiscal consolidations in low-income countries (LICs) through value added tax (VAT), personal income tax (PIT), and corporate income tax (CIT). We extend the standard heterogeneous agents incomplete markets model by including multiple sectors and rural-urban distinction to capture salient features of LICs. We find that overall, VAT has the least efficiency costs but is highly regressive, while PIT impacts the economy in the opposite way with CIT staying in between. Cash transfers targeting rural households mitigate the negative distributional impacts of VAT most effectively, while public investment leads to little redistribution.