cover image: Illicit Schemes : Fossil Fuel Subsidy Reforms and the Role of Tax Evasion and Smuggling

20.500.12592/0ptkwp

Illicit Schemes : Fossil Fuel Subsidy Reforms and the Role of Tax Evasion and Smuggling

1 Jan 2022

This study develops a computable general equilibrium model for Nigeria, which accounts for informality, tax evasion, and fuel smuggling. By studying the impact of fuel subsidy reform on consumption, tax incidence, and fiscal efficiency, it shows that the presence of illicit activities substantially strengthens the argument in favour of subsidy reform: First, fuel subsidy reform can shift the tax base to energy goods, which are less prone to tax evasion losses than for instance labour. Second, by reducing price differentials with neighbouring countries, subsidy reform reduces incentives for fuel smuggling. Overall, the results show that considering illicit activities reduces the welfare losses of fuel subsidy reform by at least 40 percent. In addition, fuel subsidy reductions (and by extension energy tax increases) have a strong progressive distributional impact. The findings hold under different revenue redistribution mechanisms, in particular uniform cash transfers and the reduction of pre-existing labour taxes.
tax evasion smuggling cge model fuel subsidy macroeconomics and economic growth :: taxation & subsidies law and development :: tax law public sector development :: tax administration

Authors

Rentschler, Jun, Hosoe, Nobuhiro

Collection(s)
Policy Research Working Papers
DOI
http://dx.doi.org/10.1596/1813-9450-9907
Googlescholar linkpresent
yes
Identifier externaldocumentum
090224b088c9737a_1_0
Identifier internaldocumentum
33709135
Published in
United States of America
Region country
Nigeria
RelationisPartofseries
Policy Research Working Paper;No. 9907
Report
WPS9907
Rights
CC BY 3.0 IGO
Rights Holder
World Bank
Rights URI
http://creativecommons.org/licenses/by/3.0/igo
UNIT
GGSVP Chief Economist (GGSCE)
URI
http://hdl.handle.net/10986/36878
citation
“Rentschler, Jun; Hosoe, Nobuhiro. 2022. Illicit Schemes : Fossil Fuel Subsidy Reforms and the Role of Tax Evasion and Smuggling . Policy Research Working Paper;No. 9907. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/36878 License: CC BY 3.0 IGO.”
date disclosure
2022-01-20
region administrative
Africa

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