Tax Reduction Policies of the Productive Sector and Its Impacts on Brazilian Economy

There is a widespread feeling in Brazilian society that tax reform has become necessary. Analysts seek to mitigate the perverse impact of taxation on economic efficiency and competitiveness of the productive sector. In view of this, the objective of this work is to contribute to the discussion about tax reduction in the productive sector through a dynamic stochastic general equilibrium (DSGE) model. To achieve this purpose, two stochastic shocks will be analyzed in the tax rates changes on labor income and capital income. The results suggest that the tax reduction in the first tax is greater than the same effect in the second. In this first shock, there were increases in output, consumption and investment and decreases in public debt and government spending. In the second shock, the poor performance was related to low growth in the capital stock. The results of the tax revenues were similar for the two tax reductions. They showed alignment with the major tax reform proposals for Brazil, a decrease in direct taxes and an increase in indirect taxes.