The Poverty And Equity Implications Of A Rise In the Value Added Tax: A Microeconomic Simulation For Lebanon15 May 2009
This paper examines the impact of a rise in the Value Added Tax (VAT) on poverty and inequality in Lebanon. To this end, the paper develops an empirical model based on consumer demand theory and uses only household survey data on expenditures and spatial price indexes. The simulation results using an Almost Ideal Demand System show that the projected VAT rate increases will have a limited impact on extreme poverty, due to the mostly progressive nature of current exemptions. However, overall poverty will be significantly affected, as households just above the national poverty line might fall into poverty as a result of the rate increases.