The thesis seeks to analyse the optimal design of indirect taxes for Brazil. The analysis is intended to shed some light on the question of how and to what extent redistributive goals can be achieved through the indirect tax system. A computable model is specified in which households choose consumption goods to maximise their utilities and the government chooses, for the urban and the rural sector separately, a set of commodity taxes and a (uniform) poll subsidy to households so as to maximise a Bergson-Samuelson social welfare function subject to its budget constraint and the restrictions on its ability to tax. It is assumed that producer prices are fixed and there are no profits. The model is solved under alternative assumptions about the extent of the government's concern with inequality, the constraints it may face on taxation possibilities, its revenue requirements and the preferences of households. The impacts of the optimal taxes on the welfare of households and on the overall level of social welfare are measured and compared with the effects of alternative partial—i.e., non-optimising—tax reform proposals. The results suggest that the potential redistributive power of indirect taxation in Brazil is quite strong though substantial changes in the existing rate structure would be required in order to secure significant improvements in social welfare
