This article uses
recent expenditure survey data to investigate how indirect taxes are paid
across the Brazilian population. It applies a novel approach to estimate the
effective tax rate by computing the specific cumulative taxes levied on
thousands of items available in the data set. The findings show that, for every
BRL 100 of indirect tax revenue, the first and second deciles pay BRL two and BRL
three, respectively, while the ninth and tenth deciles pay BRL sixteen and BRL
thirty-three, respectively. Meanwhile, indirect taxes are found to be
regressive: they represent between 23 and 45% of income among the poorest
households and between 13 and 19% among the richest. Simulations of a
value-added tax reform suggest that it could be inequality reducing both
horizontally and vertically. A flat value-added tax accompanied by excise taxes
on fuel items, alcohol, and tobacco that yield final simulated prices equal to
the status quo would still lead to lower overall expenditures. Households would
spend 2.8% less on average with those in the bottom (top) decile spending 7.0%
(1.5%) less. The burden placed by indirect taxes among the poorest households appears
to be among the highest in a large set of countries.