Indirect Tax Reform, Poverty and Inequality in DRC : A Dominance Stochastic Approach

This paper aimed at discussing the Congolese government's choice on exempt goods during indirect tax reform and, on the other side, assessing the impact of this reform on inequality. We estimated from 123 household surveys from 2005 the Quadratic Almost Ideal Demand System for the first time in DRC and calculated Marginal Efficiency Cost of Funds (MECF) for exempt and non-exempt goods. We found that MECF is very low for the exempt goods – especially for "bread and wheat flour locally produced" – compared to non-exempt goods. In this light, we did check over taxable goods, the one that would be exempt. In doing so, we used Dominance stochastic curves. It would be more effective to reduce poverty by exempting "other cereals and its products" rather than "bread and wheat flour produced locally. The government's choice can be only regarded as pro-poor on the "milk and wheat flour produced locally" and "cement and fuel". Beyond of this, the indirect tax reform did not meet the equity rule and its impact on inequalities alleviation remains inconsiderable