The Poverty and Equity Implications of A Rise in the Value Added Tax: A Microeconomic Simulation for Lebanon - Economic Research Forum (ERF)

The Poverty and Equity Implications of A Rise in the Value Added Tax: A Microeconomic Simulation for Lebanon

Nisreen Salti and Jad Chaaban

April, 2009


18 pages

Economic Research Forum (ERF)

D. Microeconomics

This paper examines the impact of a rise in the Value Added Tax (VAT) on poverty and inequality in Lebanon. To this end, the paper develops an empirical model based on consumer demand theory and uses only household survey data on expenditures and spatial price indexes. The simulation results — using an Almost Ideal Demand System — show that the projected VAT rate increases will have a limited impact on extreme poverty, due to the mostly progressive nature of current exemptions. However, overall poverty will be significantly affected, as households just above the national poverty line may fall into poverty as a result.

Arabic Abstract:

تدرس هذه الورقة تأثير ارتفاع ضريبةالقيمةالمضافة على معدل الفقر وعدم المساواة في لبنان ولهذا الغرض تضع هذه الورقة نموذجاً تجريبيا يقوم على نظرية متطلبات العميل وتستخدم فقط بيانات مسح منزلي على المصروفات ومؤشرات الأسعار المكانية. وتبين نتائج المحاكاة التي تستخدم نظام الطلب شبه المثالي (AIDS) تبين أن المعدل المتوقع لزيادة ضريبة القيمة المضافة سيكون له تأثير محدود على معدل الفقر المدقع بسبب الطبيعة التصاعدية للإعفاءات الحالية. وعلى أية حال فإن المعدل الإجمالي للفقر سيتأثر بشكل ذي بال لأن الأسر التي فوق خط الفقر المحلي ربما لإنحدرت إلي الفقر بسب زيادة معدلات الفقر
Research Fellows

Nisreen Salti

Associate Professor, Department of Economics, American University of Beirut

Research Fellows

Jad Chaaban

Associate Professor of Economics, American University of Beirut



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