In an attempt to reduce tax distortions and increase economic efficiency, in 2002 and 2003 Brazil promoted changes in the PIS/COFINS tax, the main federal tax on consumption. Thus, in addition to the old cumulative regime calculated on company revenues, the noncumulative regime was created with higher rates and the added value as a tax basis.
This paper analyzes the effects of the PIS/COFINS reform in a context of deindustrialization in the Brazilian economy, using a neoclassical model with two sectors.
The results suggest that after a small improvement in the aggregate economy in the short term, in the long term there was a worsening of the macroeconomic indicators. From the sector perspective, the PIS/COFINS reform may have contributed to the loss of industry participation in the Brazilian economy.
The study of the impact of the PIS/COFINS reform on industry through a neoclassical model is unprecedented in the national literature and contributes to the investigation of changes in the tax regime that occurred in the country.
