In the Same Boat, but not Equals: The Heterogeneous Effects of Indirect Taxation on Child Health in Punjab-Pakistan

JEL Classification : H2, I12, I22, J18
Publication Year : 2018

The 2011 National Nutrition Survey of Pakistan revealed that 51 percent of the country’s population was consuming less than 2,100 calories a day. In the backdrop of rising food insecurity, hunger and malnutrition in Pakistan, this study aims to measure the effects of indirect taxation on health outcomes of children (<5 years). More specifically, the impact of incidence of General Sales Tax (GST) in the province of Punjab has been estimated on a child’s height and weight. The proponents of the uniform GST argue that the tax would not affect children because most food items consume by children are exempted from the GST. However, the opponents believe that household, especially those belonging to the lower income group, would reallocate resources away from children in the face of higher GST. To study these effects, we utilised three different waves (2007-08, 2011, and 2014) of Multiple Indicators Cluster Surveys (MICS). The results show that the tax incidence, and not the GST rate, has a significantly negative impact on children’s height-for-age Z-score (HAZ). No effect was found on weight-for-age-z-score (WAZ). These results are robust to different specifications and exhibit considerable heterogeneity across different income groups. These findings suggest that the exemption of certain food items for children from the GST may not eliminate the negative effects of this tax on a child’s health. Thus, our study raises concerns on the long term welfare consequences of GST.