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VAT Evasion and VAT Avoidance: Is there a European Laffer curve for VAT?

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  • Kent Matthews

Abstract

This paper estimates the VAT revenue maximising rate of VAT for the European Union for given conditions of non-compliance and other black economy transactions. It estimates a Laffer curve for the standard rate of VAT using a pooled sample of data of revenue statistics for 14 countries in the EU. The results confirm that the efficiency of the VAT system declines as the VAT rate increases. The decline in efficiency is due to a mixture of a reduction in the VAT base, and VAT evasion and avoidance. As a result of the single market, the EU Commission has proposed a common or closely converged rate of VAT within Europe. The actual common rate of VAT has yet to be decided. This paper contributes to this policy debate.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/713673162
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 17 (2003)
Issue (Month): 1 ()
Pages: 105-114

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Handle: RePEc:taf:irapec:v:17:y:2003:i:1:p:105-114

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References

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  1. Agha, Ali & Haughton, Jonathan, 1996. "Designing VAT Systems: Some Efficiency Considerations," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 303-08, May.
  2. Hsing, Yu, 1996. "Estimating the laffer curve and policy implications," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 25(3), pages 395-401.
  3. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
  4. Cremer, Helmuth & Gahvari, Firouz, 1993. "Tax evasion and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 50(2), pages 261-275, February.
  5. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
  6. Kent Matthews & Jean Lloyd-Williams, 2000. "Have VAT rates reached their limit?: an empirical note," Applied Economics Letters, Taylor & Francis Journals, vol. 7(2), pages 111-115.
  7. Marrelli, Massimo, 1984. "On indirect tax evasion," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 181-196, November.
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Citations

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Cited by:
  1. Michael Keen & Ben Lockwood, 2007. "The Value Added Tax: Its Causes and Consequences," Economics Working Papers ECO2007/09, European University Institute.
  2. Stephen C. Smith & Michael Keen, 2007. "VAT Fraud and Evasion," IMF Working Papers 07/31, International Monetary Fund.
  3. Ruud de Mooij & Michael Keen, 2012. ""Fiscal Devaluation" and Fiscal Consolidation: The VAT in Troubled Times," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 443-485 National Bureau of Economic Research, Inc.
  4. Francisca Guedes de Oliveira & Leonardo Costa, 2013. "The Vat Laffer Curve And The Business Cycle," Working Papers de Economia (Economics Working Papers) 02, Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto).
  5. Ben Lockwood & Michael Keen, 2007. "The Value-Added Tax," IMF Working Papers 07/183, International Monetary Fund.
  6. Michael Keen & Ruud A. de Mooij, 2012. "Fiscal Devaluation and Fiscal Consolidation," IMF Working Papers 12/85, International Monetary Fund.

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