The Macroeconomic Impact of the IMF Recommended VAT Policy for the Fiji Economy: Evidence from a CGE Model

No Thumbnail Available
File version
Author(s)
Narayan, Paresh Kumar
Griffith University Author(s)
Primary Supervisor
Other Supervisors
Editor(s)
Date
2003
Size
File type(s)
Location
License
Abstract

Value Added Tax (VAT) is a general consumption tax levied on goods and services. In September 2002, in the face of mediocre economic performance, deteriorating government finances and stagnant investment levels - all due to the political coups of 2000 -an increase in VAT was recommended to Fijian policy makers by the IMF as a remedy to Fiji's problems. The Fiji government, without an in depth economy wide repercussions of a VAT policy, welcomed it by announcing a 25% increase in VAT in its 2003 budget. Beginning 1 January 2003 all goods and services were levied a VAT rate of 12.5%. In this paper, we use a computable general equilibrium model to examine the economy wide effects of this VAT policy. We find that while the VAT improves government revenue and brings about a small 0.6% increase in real GDP, it fails to address investment levels. VAT actually leads to a decline in investments and a reduction in real consumption and national welfare. We highlight that large amounts of tax revenue are owed to government. This is three times more than what government will collect from the 25% increase in VAT. In this light, an alternative to VAT is to upgrade government's tax collecting mechanism. From this we deduce that the IMF policy is misdirected.

Journal Title

Review of Urban & Regional Development Studies

Conference Title
Book Title
Edition
Volume

15

Issue

3

Thesis Type
Degree Program
School
Patent number
Funder(s)
Grant identifier(s)
Rights Statement
Rights Statement
Item Access Status
Note
Access the data
Related item(s)
Subject

Urban and Regional Planning

Human Geography

Policy and Administration

Persistent link to this record
Citation
Collections