Direct and Indirect Taxation in Morocco: A Computable General Equilibrium Analysis

This study examines the differential impacts of personal income tax (PIT) and value-added tax (VAT) on Morocco's economy using a Computable General Equilibrium model. We simulate symmetric tax rate adjustments to identify how alternative fiscal instruments affect sectoral production, aggregate GDP, and household welfare. Results reveal three principal findings. First, income tax reductions generate substantially larger welfare gains than equivalent VAT reductions, delivering approximately 1.7 times the welfare improvement per percentage point of tax reduction. Second, the two instruments produce markedly different sectoral impacts: PIT reductions favor agriculture (+0.80%) while VAT reductions benefit industry (+0.66%). Services contract under both scenarios due to reduced government consumption. Third, aggregate GDP effects diverge from welfare impacts, with VAT generating larger GDP gains despite inferior welfare outcomes. These findings carry important policy implications: if maximizing household welfare is the primary objective, fiscal resources devoted to tax relief should be channeled through personal income tax rather than VAT, though sectoral development objectives may create trade-offs requiring careful policy calibration.