Informality, consumption taxes and redistribution

Arbeitspapier

Can taxes on consumption redistribute in developing countries? Contrary to consensus, we show that taxing consumption is progressive once we account for informal consumption. Using household expenditure surveys in 32 countries we proxy for informal consumption using the type of store where purchases occur. We establish that the budget share spent in informal stores steeply declines with income, so that richer households pay a substantially larger share of their income in taxes. Our findings imply that the widespread policy of exempting food from taxation is hard to justify on equity grounds in low-income countries.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 945

Classification and Topics

• Classification: Wirtschaft ; Informal Economy; Underground Economy ; Taxation and Subsidies: Efficiency; Optimal Taxation ; Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
• Subject: Budget Surveys ; Inequality ; Informality ; Redistribution ; Taxes

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bachas, Pierre ; Gadenne, Lucie ; Jensen, Anders
• Event: Veröffentlichung
• (who): Queen Mary University of London, School of Economics and Finance
• (where): London
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/284295
• Last update: 10.03.2025, 11:43 AM CET