The distributional consequences of a tax reform on a VAT for Pakistan

Abstract

To what extent do rich or poor lose or gain from different tax reform packages ? The authors compare the consequences of different options by analyzing actual patterns of consumption and production. Pakistan, which relies on a narrow tax base has difficulty ensuring that the tax system keeps pace with the growth in national income and activity, without frequent discretionary changes. These changes increase the distortions caused by cascading, with adverse effects on both exports and poor households. The authors'method of estimating the consequences of tax reform shows, for example, that a value added tax would make Pakistan's tax system more buoyant and reduce the production distortions.Environmental Economics&Policies,Public Sector Economics&Finance,Economic Theory&Research,Banks&Banking Reform,Municipal Financial Management