Proposed tax restructuring and budget for RS – an analysis on Computable General Equilibrium

Abstract

This paper investigates the effects of tax restructuring policies and public expenditure for the State of Rio Grande do Sul. The objective is to evaluate, through the Computable General Equilibrium model, if marginal changes in the ICMS aliquot in the selected sectors and/or reduction spending can lead to a balanced budget of the state public accounts and analyze the potential effects of these shocks on the state’s economy. Thus, we simulated the impact of the ICMS increase shocks for three sectors: Energy, Communications, Oil Refining and Oil and Gas Extraction Industry, and uniform reduction in public spending to a short-term closure and other long-term. The results indicate reduction of income and employment in Rio Grande do Sul in most scenarios prepared, but with positive results if the policy is permanent (long-term) rather than transient (short term), with a possible budget balance achieved in approximately ten years.

Keywords: tax restructuring, ICMS, Computable General Equilibrium.