Who will be on board the TRAIN to Inclusive Growth? an economic analysis on the impact of tax reform in the Philippines
Date
2018-12
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Abstract
This paper investigates the impact of the provisions of the new tax system brought by TRAIN Law Package 1 on household consumption across income deciles in the Philippines. Using the demand function and Log-Log Regression, we estimate the income and price elasticities of demand for rice, meat, fish, vegetables, and fruit commodities across all income deciles. These elasticities were further used to simulate changes in the dependent variable – the quantity of each commodity due to price and income. The simulation results show that on average, all commodities across income deciles show a negative percentage change in quantities consumed taking into account effects both due to income and
indirect taxation. The first income decile shows the lowest coefficient relative to the highest income decile with -23.56 percent for rice, -22.49 percent for meat, -15.07 percent for vegetables, and -12 percent for fruits. For the fish section, the largest forecasted decrease in quantity consumed per household, relative to the tenth decile, is reflected in the fourth decile at 18.98 percent. However, the first decile still exhibits a significantly large reduction in quantity at 11.15 percent. This implies that all income deciles are expected to lose from the new tax system, with the lower income deciles to lose more, and the lowest income decile to lose the most.
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TRAIN, tax reform, household income, consumption, income deciles