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Does VAT reduce the instability of tax revenues?

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  • Christian EBEKE
  • Hélène EHRHART

    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

Abstract

In this study, we examine whether or not the adoption of value-added tax (VAT) in developing countries is an effective way of stabilising tax revenues. Using a large panel of 103 developing countries observed over 1980-2008 and several alternative estimation methods in order to deal with the self-selection bias and the endogeneity issue inherent in VAT adoption, we found robust evidence that the presence of VAT leads to significantly lower tax revenue instability. On average, countries with VAT experience 40-50% less tax revenue instability than countries which do not have a VAT system. These effects decrease with the level of economic development and the openness of trade.

Suggested Citation

  • Christian EBEKE & Hélène EHRHART, 2011. "Does VAT reduce the instability of tax revenues?," Working Papers 201124, CERDI.
    • Handle: RePEc:cdi:wpaper:1280
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    Cited by:

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    3. Erero Jean Luc, 2021. "Contribution of VAT to economic growth: A dynamic CGE analysis," Journal of Economics and Management, Sciendo, vol. 43(1), pages 22-51, January.
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    6. Godiva Rembeci, 2017. "Foreign Direct Investments and Their Impacts to Environment, Albania Case," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 3, May - Aug.

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    More about this item

    Keywords

    Tax Instability; Value Added Tax; Macroeconomic Fluctuations;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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