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This paper aims to illustrate the usefulness of the proposed procedure to evaluate the Goods and Services Tax (GST) in India by applying it to provide evidence on optimal commodity tax rates.

In the optimal commodity tax literature, the commonly used Ramsey–Samuelson–Diamond–Mirrlees framework assumes invariance of budget allocation between pre- and posttax regimes and uses only the first-order conditions in the two-stage optimization procedure. This paper proposes an iterative method that overcomes the above limitations in obtaining the optimal tax rates.

It is found that the optimal commodity taxes are highly sensitive to the procedure used to estimate them. The resulting tax rates turn out to be close to the GST tax slabs. The results also show that on both absolute and relative measures, for all the selected states considered here and for All-India, the optimal tax systems are progressive for two chosen values of the inequality aversion parameter.

There is a very limited literature on the computational methodology to calculate optimal commodity taxes, and consequently, the evidence is quite scarce as well. In combining contributions to the computation of optimal taxes with empirical evidence, this paper fills a significant gap in the literature. The context of India gives it added value since the GST has recently been introduced in India, and to the best of the authors’ knowledge, this is one of the first attempts at evaluating the Indian GST through the spectacles of optimal taxes.

This paper aims to provide a quantitative assessment of the broad economic effects of tax policy reform in the Kingdom of Saudi Arabia (KSA).

Using a dynamic computable general equilibrium (CGE) model of the KSA, three simulations are run. The first simulation is the baseline simulation, which generates growth paths of the Saudi economy in the absence of tax reform. In developing the baseline simulation, this study incorporates forecasts from the International Monetary Fund. The remaining simulations are policy simulations. A policy simulation deviates from the baseline simulation in response to a policy change. In the first policy simulation, this study introduces a value-added tax (VAT) that generates SAR 35bn. This study assumes budget neutrality with the additional tax revenue transferred to households via a lump sum payment. In the second policy simulation, this study introduces a corporate income tax that generates SAR 35bn. This study then calculates and compares the distortion these taxes introduce into the economy.

This study finds that although the introduction of new taxes increases government tax revenue, markets are distorted lowering efficiency and production. An introduction of VAT increases the cost of consumption relative to the cost of production. As a consequence, the real cost of labour increases lowering employment in the short run. Employment moves to the baseline, as wages adjust capital and real gross domestic product (GDP) is below base throughout the simulation period. The second simulation is an increase in the corporate tax rate with lowers the post-tax rates of return investors receive. This simulation shows that the negative impact on investment, capital and GDP is larger with the introduction of a corporate tax than with the VAT.

Literature focusing on tax policy reform in the Gulf Cooperation Council and, specifically, Saudi Arabia is limited. This paper contributes to the literature by focusing on the following: understanding the impact and mechanisms through which changes in taxation impact the economy more generally; understanding the potential harm caused to allocative efficiency and production due to taxes; and ways in which fiscal reform might complement other reforms such as efforts to diversify the economy, labour market and energy price reforms. This improves the information base available to policymakers charged with designing an optimal tax system that meets all future requirements of a country such as the KSA.

The authors developed and applied a CGE model for the KSA to analyse the impact of VAT and corporate tax on the Saudi economy. To the best of the authors’ knowledge, there are no recent CGE models for Saudi Arabia that have been used for tax policy or quantifying the potential harm to the economy when new taxes are introduced.

This paper examines the question of the extent to which redistribution can be achieved using a structure of consumption taxes with differential rates and exemptions. A local measure of progression, that of liability progression (equivalent to the revenue elasticity) is examined. Results are obtained for the Australian indirect tax structure. These are compared with structures in which only commodity groups with total expenditure elasticities greater than 1 are taxed. Comparisons are also made using equivalent variations, and inequality measures of a money metric welfare measure are reported.

The purpose of this paper is to address two fundamental issues in indirect tax design. It first revisits the case for reduced rates on items especially important to the poor, and then explores the welfare costs from cascading taxes.

Applied theory was used in this paper.

On the first issue, the paper establishes conditions under which even very crudely targeted spending measures better serve the interests of the poor than does the reduced taxation of particular commodities looming large in their consumption. On the second, it shows that these may actually be lower the wider the set of inputs that are taxed but, more to the point, may plausibly be large even at a low nominal tax rate and with relatively few stages of production: contrary to a common mantra, “a low rate on a broad base” is not always good policy.

Both issues addressed in the paper are recurrent and central concerns in the design of indirect taxes in general, and the value-added tax (VAT)/general sales tax (GST) in particular. The author is unaware of other treatments that are at all comparable in perspective or results. The author hopes the analysis will prove useful in many contexts where these issues arise – not least in India, where these issues are central to discussions of VAT/GST reform.