Tax incidence in Madagascar: An analysis using household data

This article discusses tax incidence in Madagascar and asks who pays the ta xes that finance government spending. Its main concern is to identify the p rogressivity of differ ent taxes levied in Madagascar, based on the consump tion ann income patterns found in the 1994 Enquete Permanente aupres des Me nages, a nationally representative survey. The results suggest that most ta xes are progressive, meaning that wealthy households pay proportionately mo re of these taxes relative to their expenditures than do poor households. T wo notable exceptions are taxes on kerosene and export duties on vanilla, b oth of which are regressive. These results are consistent with those of a s tudy of Ghana, the only other comparable research on tax incidence in Afric a. That study found taxes on kerosene and cocoa exports to be the most regr essive taxes in Ghana. Making firm policy recommendations for tax reform would require an analysis of the economic efficiency and administrative efficacy of different taxes to complement this article's work on their equity implications. Nevertheles s, the results suggest that the movement away from trade taxes, especially export duties, and toward broadly based value added or income taxes would b e more equitable and more economically efficient. The only legitimate imped iment to such reforms in Madagascar is administrative, that is, the governm ent's ability to collect different taxes effectively. Although administrati ve efficiency may be a problem for value added or income taxes, taxes on pe troleum products (except kerosene) are highly progressive and provide a goo d tax handle.