Influence of Taxation Policy on the Employment of Production Factors in Agriculture Sector Using a CGE Modelling Approach

Abstract

This study investigates the impact of indirect taxation on employment in Afghanistan's agriculture sector, addressing the lack of research on its short-term macroeconomic effects, particularly in agricultural sub-sectors. To fill this gap, a general equilibrium model integrated with a social accounting matrix was used to quantify employment responses across ten scenarios, testing 20%, 40%, 60%, 80%, and 100% changes in the 2018 indirect tax volume. The findings reveal a direct correlation between indirect taxes and labor and capital employment, where tax reductions led to a decline in employment across all agricultural categories. In contrast, tax increases had the opposite effect. Forestry contributed the most to employment growth under rising tax scenarios, followed by opium, vegetables, cereals, fruits, and livestock. The study highlights the need for alternative job opportunities and effective tax revenue management to mitigate labor market disruptions and support sustainable agricultural development