TAX EXEMPTION OF THE BASIC FOOD BASKET OR EXPANSION OF THE BOLSA FAMÍLIA PROGRAM? A COMPUTABLE GENERAL EQUILIBRIUM SIMULATION

ABSTRACT In order to reduce poverty, from 2013 onwards, the Brazilian government promoted the exemption of the basic food basket and increased the value of the Bolsa Família Program (PBF). This paper seeks to analyze which of the two policy options would have greater impact on the poorest households if the funds for the two were equal. Next, it was calculated which level of targeting required for the PBF would equal the impacts of the two policies. For this purpose a general equilibrium model was built with discrete time and heterogeneous households. The results show that the increase of the transfers generates greater benefit on the welfare of the poorer class than the relief of the basic basket. This result is maintained at a target level of PBF at least 35.4%. For lower levels of targeting, the relief of the basket becomes preferable.