The value added tax: Its causes and consequences
AbstractThis paper explores the causes and consequences of the remarkable rise of the value added tax (VAT), asking what has shaped its adoption and, in particular, whether it has proved an especially effective form of taxation. It is first shown that a tax innovation, such as the introduction of a VAT, reduces the marginal cost of public funds if and only if it also leads an optimizing government to increase the tax ratio. This leads to the estimation, on a panel of 143 countries for 25Â years, of a system describing both the probability of VAT adoption and the revenue impact of the VAT. The results point to a rich set of determinants of VAT adoption, and to a significant but complex impact on the revenue ratio. The estimates suggest, very tentatively, that most countries which have adopted a VAT have thereby gained a more effective tax instrument, though this is less apparent in sub-Saharan Africa.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Development Economics.
Volume (Year): 92 (2010)
Issue (Month): 2 (July)
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Web page: http://www.elsevier.com/locate/devec
Value added tax Tax reform;
Other versions of this item:
- Keen, Michael & Lockwood, Ben, 2007. "The Value Added Tax : Its Causes and Consequences," The Warwick Economics Research Paper Series (TWERPS) 801, University of Warwick, Department of Economics.
- Michael Keen & Ben Lockwood, 2007. "The Value Added Tax: Its Causes and Consequences," Economics Working Papers, European University Institute ECO2007/09, European University Institute.
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
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