Illicit Schemes : Fossil Fuel Subsidy Reforms and the Role of Tax Evasion and Smuggling
This study develops a computable general equilibrium model for Nigeria, which accounts for informality, tax evasion, and fuel smuggling. By studying the impact of fuel subsidy reform on consumption, tax incidence, and fiscal efficiency, it shows th...
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| Language: | English |
| Published: |
World Bank, Washington, DC
2022
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| Online Access: | http://documents.worldbank.org/curated/undefined/631951642691400564/Illicit-Schemes-Fossil-Fuel-Subsidy-Reforms-and-the-Role-of-Tax-Evasion-and-Smuggling http://hdl.handle.net/10986/36878 |
| Summary: | This study develops a computable
general equilibrium model for Nigeria, which accounts for
informality, tax evasion, and fuel smuggling. By studying
the impact of fuel subsidy reform on consumption, tax
incidence, and fiscal efficiency, it shows that the presence
of illicit activities substantially strengthens the argument
in favour of subsidy reform: First, fuel subsidy reform can
shift the tax base to energy goods, which are less prone to
tax evasion losses than for instance labour. Second, by
reducing price differentials with neighbouring countries,
subsidy reform reduces incentives for fuel smuggling.
Overall, the results show that considering illicit
activities reduces the welfare losses of fuel subsidy reform
by at least 40 percent. In addition, fuel subsidy reductions
(and by extension energy tax increases) have a strong
progressive distributional impact. The findings hold under
different revenue redistribution mechanisms, in particular
uniform cash transfers and the reduction of pre-existing
labour taxes. |
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