Hatice Jenkins, Ph.D., Department of Banking and Finance, Eastern Mediterranean University, North Cyprus, Gazimagusa, Mersin 10, Turkey, Glenn Paul Jenkins, Ph.D., Department of Economics, Eastern Mediterranean University, North Cyprus, Gazimagusa, Mersin 10, Turkey, and Chun-Yan Kuo, Ph.D, Department of Economics, Queens' University, 94 University Avenue, Kingston, ON K7L 3N6, Canada.
Objective
A broad based consumption tax, such as a value added tax, is generally considered to be a regressive tax. This conclusion, however, has not taken into account the fact that in developing countries the commodities on which poor households spend most of their income, even if they are included in the legal tax base, are administratively impractical to tax. Therefore, we wish to see, after taking this factor into consideration, if value added tax has a burden that is distributed in a more progressive manner.
Data/Methods
This paper employs a rich data set on household incomes and expenditures for the Dominican Republic. The data set covers 2042 goods and services purchased by households of different income and consumption levels. It also contains information on the type of establishment from which the items were purchased. With this information we estimate the effective rate of tax that has been paid on each item purchased by households. These estimations include the effect of the different rates of the tax compliance across households with different expenditure levels.