An Analysis of the Impact of Tax Policy Changes on Poor and Non-Poor Households in Thailand: An Application of the General Equilibrium Model
Keywords:
Taxation, Inequality, General Equilibrium ModelAbstract
Following the pandemic and socioeconomic challenges, Thailand's fiscal deficit has necessitated tax structure adjustments, particularly to VAT, to maintain fiscal discipline and generate appropriate revenue for sustainable economic development. This study develops a general equilibrium model suitable for analyzing the impacts of VAT rate changes on low-income and high-income households in Thailand. The research finds that increasing VAT to 10%, while reducing income taxes for low-income earners, high-income earners, and corporations, results in higher labor supply at equilibrium and increased consumption throughout the economy. Additionally, to help low-income households and support sustainable economic growth, subsidies aligned with working hours increase both consumption and welfare for low-income groups. However, the Thai government must consider appropriate budget allocation, as the study finds that raising VAT above 15% negatively affects labor supply and reduces welfare for both low-income and high-income groups.
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