Welfare Impact of Value-Added Tax Reform : The Case of the Democratic Republic of Congo
The adoption of the value-added tax the Democratic Republic of Congo in 2012 led to price increases that are thought to adversely affect the welfare of most Congolese households. To date, research has not yet examined the poverty and distributional...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/553221561659369227/Welfare-Impact-of-Value-Added-Tax-Reform-The-Case-of-the-Democratic-Republic-of-Congo http://hdl.handle.net/10986/31995 |
| Summary: | The adoption of the value-added tax the
Democratic Republic of Congo in 2012 led to price increases
that are thought to adversely affect the welfare of most
Congolese households. To date, research has not yet examined
the poverty and distributional impacts of this tax reform.
Using data from the 2012 Living Standards Measurement
Survey, this paper investigates whether the current
value-added tax regime, with its exemptions, is progressive.
Relying on the Quadratic Almost Ideal Demand System and
several welfare measures, the analysis finds that the
adoption of the value-added tax erodes the purchasing power
of all Congolese households by a factor of 10 to 12 percent.
Yet, the value-added tax appears to be highly progressive.
Households in the top food expenditure quintile bears
approximately 40 percent of the welfare loss compared with
less than 10 percent among households in the bottom food
expenditure quintile. Other inequality measures, such as the
Gini coefficient, further support this finding that the
value-added tax is progressive. Finally, the study finds
that the adoption of the value-added tax leads to a
worsening of the food poverty headcount by approximately 1.2
percentage points. |
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