Tax reform: the macroeconomics and setorial effects of PEC 233/2008

Abstract

In spite of a disappointed historical, the Brazilian government sent a new tax reform proposal to the National Congress, PEC 233/2008. The proposals unify some of the federal consumption taxes into a federal VAT, simplifies ICMS legislation, reduce investment and social securities rates and rates applied to essential goods. In order to analyze this change, it was constructed a general equilibrium model with 55 firms of the economy. The results suggest a moderate expansion of aggregate output, consumption, employment and investment with a little loss in revenues and a gain in welfare. Also, we have substantial changes in sectorial output, with a tendency of increasing the share of farm and industrial sectors in detriment of services.