Is Tax Policy Retarding Growth in Morocco?

Tatom, John (2007): Is Tax Policy Retarding Growth in Morocco?

Abstract

Morocco has a distinguished reputation for opening the economy, privatization and for increasing the role of the private sector in economic development. The nation has also had well known success in achieving a high degree of price stability through a fixed and credible exchange rate that was supported by sound monetary policy. All of these successes led to accelerated investment, both domestically and by foreigners. One highly important potential impediment to growth is that Morocco, however, appears to have neglected the global fiscal reform movement aimed at providing a growth oriented and fairer tax system that encourages private sector risk-taking and investment. Following some key reform in the early 1990s, tax rates have not been altered much since then and remain relatively high, especially for individuals at low and moderate income levels, in comparison with other countries. This paper examines the importance of tax policy for investment and whether there are opportunities there to accelerate productivity and growth through tax reform. Morocco has extremely high taxes, especially the individual income tax, social insurance or payroll taxes and the value added tax. The individual income tax is the highest in the region and the highest marginal rate begins at a relatively low level of income. The corporate tax rate is among the highest in the region as well. At least one country in the region, Tunisia, has already taken the initiative to follow the global trend of cutting marginal tax rates in order to stimulate investment and growth. Morocco could usefully consider taking the lead in pursuing more competitive and lower, broader and less-discriminating taxation. Among the most critical steps would be cutting the top rate on individual income from 44 percent and extending the income level from where it begins to a larger multiple of median income. There are numerous loopholes that could be closed in order to finance such a change. Such steps would have the added benefits of lowering interest rates and boosting private capital formation and economic growth. But a broader and more aggressive agenda of tax reform is easily justified by regional or international comparisons.

• Item Type: MPRA Paper
• Language: English
• Keywords: Tax policy, economic development, investment and growth
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O23 - Fiscal and Monetary Policy in Development; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa

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