Working Paper
Microsimulation analysis of the impact of indirect tax benefits on income distribution and poverty alleviation in Tanzania

An application of TAZMOD

This paper analyses the impacts of indirect tax policy reforms on income distribution and poverty in Tanzania by applying a standard static microsimulation model TAZMOD v1.8. The simulations model two indirect tax reforms involving changes to the excise duty and value-added tax rates on alcoholic beverages and tobacco products, and changes to employers’ and employees’ contributions to the National Health Insurance Fund.

The results of the first reform find a positive effect on government tax revenue and a neutral effect on income distribution and poverty. The results of the second reform find a positive effect on household income distribution and consumption. The findings show that, despite increasing unequal income distribution, poverty indicators fell.