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VAT attacks!

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  • Michael Keen

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Abstract

Like the theory of the second best that the 2006 congress marks, the value added tax (VAT) is now fifty years old. Judged by the extent and speed of its spread around the world, and the revenue that it raises, the VAT would seem to have been a remarkable success. Over the last few years, however, it has come under a series of attacks. This paper considers three of the most prominent of these. One is the fear (raised mainly in the United States) that the VAT actually does too good a job of raising tax revenue—which raises the empirical question of whether it has indeed proved as effective a source of revenue as its proponents claim and its opponents fear. The second is the view that the VAT does a bad job of taxing the informal sector—and that tariffs might consequently be a better revenue-raising instrument for many developing countries. The third attack is the most literal, by criminals rather than theorists: in the European Union and elsewhere, sophisticated VAT fraud, targeting its refund provisions, has become a serious concern. The paper also argues, more generally, that the many unanswered questions concerning the VAT reflect an unfortunate disconnect between the development of the tax itself and of second best tax analysis. Copyright Springer Science+Business Media, LLC 2007

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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 14 (2007)
Issue (Month): 4 (August)
Pages: 365-381

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Handle: RePEc:kap:itaxpf:v:14:y:2007:i:4:p:365-381

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: Value added tax; Indirect taxation; Tax reform; H21; H26;

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References

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  1. Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
  2. Michael Keen & Ben Lockwood, 2007. "The Value Added Tax: Its Causes and Consequences," Economics Working Papers ECO2007/09, European University Institute.
  3. John Piggott & John Whalley, 2001. "VAT Base Broadening, Self Supply, and the Informal Sector," American Economic Review, American Economic Association, vol. 91(4), pages 1084-1094, September.
  4. Keen, Michael & Ligthart, Jenny E., 2002. "Coordinating tariff reduction and domestic tax reform," Journal of International Economics, Elsevier, vol. 56(2), pages 489-507, March.
  5. Keen, Michael & Smith, Stephen, 2006. "VAT Fraud and Evasion: What Do We Know and What Can Be Done?," National Tax Journal, National Tax Association, vol. 59(4), pages 861-87, December.
  6. Timothy Besley & Michael Smart, 2005. "Fiscal restraints and voter welfare," LSE Research Online Documents on Economics 3769, London School of Economics and Political Science, LSE Library.
  7. Graham Harrison & Russell Krelove, 2005. "VAT Refunds," IMF Working Papers 05/218, International Monetary Fund.
  8. Newbery, David M., 1986. "On the desirability of input taxes," Economics Letters, Elsevier, vol. 20(3), pages 267-270.
  9. Hans-Werner Sinn & Andrea Gebauer & Rüdiger Parsche, 2004. "The Ifo Institute’s Model for Reducing VAT Fraud: Payment First, Refund Later," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 5(2), pages 30-34, October.
  10. M. Shahe Emran & Joseph E. Stiglitz, 2002. "On Selective Indirect Tax Reform in Developing Countries," International Trade 0210003, EconWPA.
  11. Michael Keen, 2007. "VAT, Tariffs, and withholding," IMF Working Papers 07/174, International Monetary Fund.
  12. James E. Anderson, 1997. "Trade Reform with a Government Budget Constraint," Boston College Working Papers in Economics 348., Boston College Department of Economics.
  13. Stephen C. Smith & Michael Keen, 2007. "VAT Fraud and Evasion," IMF Working Papers 07/31, International Monetary Fund.
  14. Hatzipanayotou, Panos & Michael, Michael S. & Miller, Stephen M., 1994. "Win-win indirect tax reform : A modest proposal," Economics Letters, Elsevier, vol. 44(1-2), pages 147-151.
  15. Knud Munk, 2008. "Tax-tariff reform with costs of tax administration," International Tax and Public Finance, Springer, vol. 15(6), pages 647-667, December.
  16. Michael Keen & Thomas Baunsgaard, 2005. "Tax Revenue and (or?) Trade Liberalization," IMF Working Papers 05/112, International Monetary Fund.
  17. Ben Lockwood & Michael Keen, 2007. "The Value-Added Tax," IMF Working Papers 07/183, International Monetary Fund.
  18. Keen, Michael & Lockwood, Ben, 2006. "Is the VAT a Money Machine?," National Tax Journal, National Tax Association, vol. 59(4), pages 905-28, December.
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Citations

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Cited by:
  1. Emanuele, Canegrati, 2007. "A Contribution to the Positive Theory of Direct Taxation," MPRA Paper 6117, University Library of Munich, Germany.
  2. Bird, Richard M., 2008. "Tax challenges facing developing countries," Working Papers 08/als1, National Institute of Public Finance and Policy.
  3. Moore, Mick, 2014. "Revenue Reform and Statebuilding in Anglophone Africa," World Development, Elsevier, vol. 60(C), pages 99-112.
  4. European Commission, 2012. "Tax reforms in EU Member States - Tax policy challenges for economic growth and fiscal sustainability – 2012 Report," Taxation Papers 34, Directorate General Taxation and Customs Union, European Commission.
  5. Dietl Helmut M & Jaag Christian & Lang Markus & Trinkner Urs W.O., 2011. "Competition and Welfare Effects of VAT Exemptions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-29, April.
  6. Jean-Louis COMBES & Gérard CHAMBAS & Gbewopo ATTILA, 2009. "Aide publique au développement et transition fiscale," Working Papers 200901, CERDI.

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