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International VAT Harmonization: Economic Effects

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  • Jacob A. Frenkel
  • Assaf Razin
  • Steve Symansky

Abstract

This paper highlights macroeconomic issues pertinent to the understanding of the international and domestic effects of international VAT harmonization. It outlines elements of the policies of VAT harmonization envisaged for Europe of 1992, and develops a basic tax model which is suitable for the analysis of the incentive effects of various tax policies and their welfare implications. The model emphasizes the effects of changes in the time profile of the various taxes on the intertemporal allocations of savings, investment, and labor. Dynamic simulations reveal that the macroeconomic and welfare implications of VAT harmonization depend critically on the tax system and on the degree of substitution governing temporal and intertemporal allocations. In this context we consider several forms of income (cash flow, labor income, and capital income taxes) as well as tax systems embodying various saving and investment incentives. The simulations also reveal the potential conflicts of interest, within each country and between countries, that can arise from VAT harmonization.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3656.

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Date of creation: Mar 1991
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Publication status: published as IMF Staff Papers, Vol. 38, December 1991.
Handle: RePEc:nbr:nberwo:3656

Note: ITI PE IFM
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References

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  1. Jacob A. Frenkel & Assaf Razin, 1989. "International Effects of Tax Reforms," NBER Working Papers 2873, National Bureau of Economic Research, Inc.
  2. W. R. M. Perraudin & Thierry Pujol, 1990. "European Fiscal Harmonization and the French Economy," IMF Working Papers 90/96, International Monetary Fund.
  3. Bovenberg, A.L., 1989. "The effects of capital income taxation on international competitiveness and trade flows," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152951, Tilburg University.
  4. Jacob A. Frenkel & Assaf Razin & Steve Symansky, 1990. "International Spillovers of Taxation," NBER Working Papers 2927, National Bureau of Economic Research, Inc.
  5. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  6. Buiter, Willem H, 1984. "Fiscal Policy in Open, Interdependent Economies," CEPR Discussion Papers 28, C.E.P.R. Discussion Papers.
  7. Frenkel, Jacob & Razin, Assaf & Sadka, Efraim, 1992. "International taxation in an integrated world," MPRA Paper 23266, University Library of Munich, Germany.
  8. Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-94, June.
  9. Jacob A. Frenkel & Assaf Razin, 1988. "Budget Deficits under Alternative Tax Systems: International Effects," IMF Staff Papers, Palgrave Macmillan, vol. 35(2), pages 297-315, June.
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