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Modelling value-added tax in the presence of multiproduction and differentiated exemptions

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  • Giesecke, James A.
  • Tran, Nhi Hoang

Abstract

We develop a framework for economy-wide modelling of value-added tax systems. Our framework models a number of complexities of VAT systems as they are implemented by tax agencies. In particular, we model multiple rates, multiple exemptions, multiple degrees of refundability across commodity users, and multi-product enterprises. A detailed VAT framework is important for correct modelling of VAT within a general equilibrium model. Such a framework is also of value in correctly representing the distribution of indirect tax payments within the database of a general equilibrium model, a prerequisite of accurate welfare analysis. We use the model to analyse the effects of simplifying Vietnam’s complex VAT system. We simplify the system by moving from three tax rates to one budget-neutral rate, while also removing many discretionary exemptions.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13914.

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Date of creation: 03 Mar 2009
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Handle: RePEc:pra:mprapa:13914

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Keywords: value added tax; dynamic CGE model; Vietnam; indirect tax reform;

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  1. Stephen Marks, 2005. "Proposed changes to the value added tax: implications for tax revenue and price distortions," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 41(1), pages 81-95.
  2. Sijbren Cnossen, 1998. "Global Trends and Issues in Value Added Taxation," International Tax and Public Finance, Springer, vol. 5(3), pages 399-428, July.
  3. Don Fullerton & Yolanda K. Henderson & John B. Shoven, 1984. "A Comparison of Methodologies in Empirical General Equilibrium Models of Taxation," NBER Working Papers 0911, National Bureau of Economic Research, Inc.
  4. Toh, Mun-Heng & Lin, Qian, 2005. "An evaluation of the 1994 tax reform in China using a general equilibrium model," China Economic Review, Elsevier, vol. 16(3), pages 246-270.
  5. Charles Ballard & John Karl Scholz & John B. Shoven, 1987. "The Value-added Tax: A General Equilibrium Look at Its Efficiency and Incidence," NBER Chapters, in: Taxes and Capital Formation, pages 105-108 National Bureau of Economic Research, Inc.
  6. Bird,Richard & Gendron,Pierre-Pascal, 2007. "The VAT in Developing and Transitional Countries," Cambridge Books, Cambridge University Press, number 9780521877657, December.
  7. Kehoe, Timothy J. & Noyola, Pedro Javier & Manresa, Antonio & Polo, Clemente & Sancho, Ferran, 1988. "A general equilibrium analysis of the 1986 tax reform in Spain," European Economic Review, Elsevier, vol. 32(2-3), pages 334-342, March.
  8. International Monetary Fund, 2007. "Vietnam: Statistical Appendix," IMF Staff Country Reports 07/386, International Monetary Fund.
  9. W. Jill Harrison & K.R. Pearson, 1994. "Computing Solutions for Large General Equilibrium Models Using GEMPACK," Centre of Policy Studies/IMPACT Centre Working Papers ip-64, Victoria University, Centre of Policy Studies/IMPACT Centre.
  10. Gottfried, Peter & Wiegard, Wolfgang, 1991. "Exemption versus zero rating : A hidden problem of VAT," Journal of Public Economics, Elsevier, vol. 46(3), pages 307-328, December.
  11. Dixon, Peter B. & Parmenter, B. R. & Powell, Alan A., 1984. "The role of miniatures in computable general equilibrium modelling : Experience from ORANI," Economic Modelling, Elsevier, vol. 1(4), pages 421-428, October.
  12. Peter B. Dixon & Maureen T. Rimmer, 1999. "Changes in Indirect Taxes in Australia: A Dynamic General Equilibrium Analysis," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 32(4), pages 327-348.
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Cited by:
  1. 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.
  2. Anum Saeed & Adeel Ahmad & Khalid Zaman, 2012. "Validity of the Value Added Tax in the SAARC Region," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(45), pages 143-170, September.

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