The Income Tax Impact on Macroeconomic Indicators: A CGE Inquest for Pakistan Economy

 By: Ghulam Moeen-ud-Din, Arshad Ali Bhatti, Hasnain Abbas Naqvi

This study is to analyze the impact of an increase in income tax on Pakistan economy`s selected indicators like GDP, national income, imports, exports, the balance of trade, private and public sector investment. The assessment utilizes the latest SAM 2010-11, developed by Dorosh et al. (2015), for Pakistan`s economy and uses a Computable General Equilibrium Model, consistent with Lofgren et al. (2002). To investigate the effect, two experiments of 5%, and 10% increase in income tax are performed. The results reveal that increase in direct tax results in improvement with regards to all important macroeconomic indicators. However, rural households’ categories express lesser improvement in comparison to urban households’ groups. Our experiment suggests that an increase in income tax should steadily be implemented to overcome the deficit in the public budget. 

Publication Link: https://qurtuba.edu.pk/jms/default_files/JMS/14_2/14_2_10.pdf