Indirect Tax Incidence in Madagascar: Estimations Using the Input-Output Table

This study evaluates the incidence of Madagascar's principal indirect taxes. It proposes an improved method for doing so, building on earlier work by Younger et al. That earlier work has evaluated tax incidence purely based on the distribution of final consumption by households. Using detailed consumption profiles from the EPM 1993/94, it is possible to impute the incidence of taxes paid by commodity and by income group. The innovation offered in this paper is to recognize that indirect taxes also raise producer input costs, which further upward pressure on producer prices. To capture this second source of tax impact on prices, this paper incorporates the 1995 Input-Output table for Madagascar in order to evaluate the price consequences of modified rates of taxation on intermediate production inputs.