Is the VAT Regressive? A CGE Analysis for Egypt

Utilizing a static Computable General Equilibrium (CGE) model for the Egyptian economy, this paper assesses the relative efficiency of VAT versus sales taxes in raising revenue and examines its equity implications. Given that the introduction of the VAT has not been uniform across sectors, it is also of interest to determine the extent to which its implementation has been distortionary. The paper further examines the interaction between fiscal and trade reform. In particular, it seeks to answer the following question: How does openness change the benefits from the VAT versus a sales tax?