Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/284295 
Year of Publication: 
2022
Series/Report no.: 
Working Paper No. 945
Publisher: 
Queen Mary University of London, School of Economics and Finance, London
Abstract: 
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.
Subjects: 
Budget Surveys
Inequality
Informality
Redistribution
Taxes
JEL: 
E26
H21
H23
023
Document Type: 
Working Paper

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