BHI advising Lebanese government on tax policy

from NEWSLINK, Vol. 8, No. 3, Spring 2004

When it comes to tax analysis and the Beacon Hill Institute, there are no boundaries. The government of the Prime Minister of Lebanon, Rafiq Hariri, has retained Dr. Jonathan Haughton, senior economist, and the institute to review the nation's tax system. The study, now underway, will examine the distributional impact of the current system (i.e. who bears the actual tax burden), provide an assessment of the tax structure (with an eye toward both equity and efficiency), and offer a set of suggestions for reform.

Taking a page from its STAMP model, the institute has developed a Revenue and Incidence Model that will allow Lebanese officials to simulate tax changes, trace the effects across the various regions and income groups and identify the true burden of taxation in Lebanon.
The model will also yield information on the potential revenue of the current tax system. These may be measured against actual revenue collection data to assess the efficiency with which taxes are collected. Lastly, the model will provide revenue forecasts under the current system, as well as the revenue with tax reform.

The rapid growth of government spending during postwar reconstruction of the 1990's led to persistent budget deficits and a ballooning national debt. In recent years, the government introduced a variety of tax reforms aimed at enlarging the tax base and generating additional revenues with the ultimate goal of reducing the deficits. To date, the most significant change has been the introduction of a Value Added Tax (VAT) in February 2002. The VAT has been a substantial revenue source and already accounts for over 30% of total tax revenue.

Lebanese officials hope to use the model and Dr. Haughton's recommendations to assist in an ongoing effort to modernize their tax system. Dr. Haughton will be returning to Beirut in the coming weeks to present preliminary findings of the study. BHI Economist Doug Giuffre, a graduate of Suffolk University's Masters in Economic Policy (Class of 2004), assisted in the development of the model.