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Abstract

This paper analyses the potentials long run effects on the Brazilian economy of two policies in the field of the indirect taxes: a) the reduction of indirect taxes on food consumption by the households and; b) the reduction of indirect taxes on the main inputs used in the agricultural activity. The analysis is accomplished through two simulation exercises using a static inter-regional applied general equilibrium model. The benchmark year is 2001. The results of both simulations are found to be similar, except in terms of magnitude: the most intense effects are associated to the reduction the taxation on foods. Both simulations show expansion in the level of economic activity in the poorest regions of the country and reduction in the richest. They also show a potential for improving the welfare of the low income classes in all regions, especially in the poorest: North and Northeast. The negative impact on the governments’ revenue is the main restriction to the implementation of these policies. Results also show that the effects of tax policies differ among regions, sometimes substantially, what strengthen the usefulness the interregional applied general equilibrium models for the analysis of tax policies impacts in Brazil.

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