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Modelling value-added tax in the presence of multi-production and differentiated exemptions

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  • Giesecke, James A.
  • Nhi, Tran Hoang

Abstract

We develop a framework for economy-wide modelling of value-added tax systems. Our framework models a number of complexities of VAT systems as implemented by tax agencies. In particular, we model multiple rates, multiple exemptions, multiple degrees of refundability across commodity users, and multi-product enterprises. We use our framework to model what is arguably South East Asia's most complex VAT system: that of Vietnam. We analyse the macroeconomic, industrial and distributional effects of simplifying Vietnam's complex VAT system. We simplify the system via a budget-neutral movement to one rate and removal of discretionary exemptions. This generates an aggregate welfare gain, but adverse distributional effects. Adverse distributional effects can be greatly ameliorated, at small cost to the aggregate welfare gain, via exclusion of paddy and rice from the VAT simplification program.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 21 (2010)
Issue (Month): 2 (April)
Pages: 156-173

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Handle: RePEc:eee:asieco:v:21:y:2010:i:2:p:156-173

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Web page: http://www.elsevier.com/locate/asieco

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Keywords: Value-added tax Dynamic CGE Vietnam Indirect tax reform;

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References

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  1. Peter B. Dixon & Maureen T. Rimmer, 1999. "Changes in Indirect Taxes in Australia: A Dynamic General Equilibrium Analysis," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 32(4), pages 327-348.
  2. Charles L. Ballard & John Karl Scholz & John B. Shoven, 1987. "The Value-Added Tax: A General Equilibrium Look at Its Efficiency and Incidence," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 445-480 National Bureau of Economic Research, Inc.
  3. Bird,Richard & Gendron,Pierre-Pascal, 2007. "The VAT in Developing and Transitional Countries," Cambridge Books, Cambridge University Press, number 9780521877657, December.
  4. W. Jill Harrison & K.R. Pearson, 1994. "Computing Solutions for Large General Equilibrium Models Using GEMPACK," Centre of Policy Studies/IMPACT Centre Working Papers ip-64, Victoria University, Centre of Policy Studies/IMPACT Centre.
  5. Gottfried, Peter & Wiegard, Wolfgang, 1991. "Exemption versus zero rating : A hidden problem of VAT," Journal of Public Economics, Elsevier, vol. 46(3), pages 307-328, December.
  6. International Monetary Fund, 2007. "Vietnam: Statistical Appendix," IMF Staff Country Reports 07/386, International Monetary Fund.
  7. Kehoe, Timothy J. & Noyola, Pedro Javier & Manresa, Antonio & Polo, Clemente & Sancho, Ferran, 1988. "A general equilibrium analysis of the 1986 tax reform in Spain," European Economic Review, Elsevier, vol. 32(2-3), pages 334-342, March.
  8. Stephen Marks, 2005. "Proposed changes to the value added tax: implications for tax revenue and price distortions," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 41(1), pages 81-95.
  9. Sijbren Cnossen, 1998. "Global Trends and Issues in Value Added Taxation," International Tax and Public Finance, Springer, vol. 5(3), pages 399-428, July.
  10. Don Fullerton & Yolanda K. Henderson & John B. Shoven, 1984. "A Comparison of Methodologies in Empirical General Equilibrium Models of Taxation," NBER Working Papers 0911, National Bureau of Economic Research, Inc.
  11. Dixon, Peter B. & Parmenter, B. R. & Powell, Alan A., 1984. "The role of miniatures in computable general equilibrium modelling : Experience from ORANI," Economic Modelling, Elsevier, vol. 1(4), pages 421-428, October.
  12. Toh, Mun-Heng & Lin, Qian, 2005. "An evaluation of the 1994 tax reform in China using a general equilibrium model," China Economic Review, Elsevier, vol. 16(3), pages 246-270.
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Cited by:
  1. Helmut Dietl & Christian Jaag & Markus Lang & Urs Trinkner, 2010. "Competition and Welfare Effects of VAT Exemptions," Working Papers 0133, University of Zurich, Institute for Strategy and Business Economics (ISU).
  2. Anum Saeed & Adeel Ahmad & Khalid Zaman, 2012. "Validity of the Value Added Tax in the SAARC Region," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(45), pages 143-170, September.

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