Is VAT the Best Way to Impose a General Consumption Tax in Developing Countries?

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Is VAT the Best Way to Impose a General Consumption Tax in Developing Countries?

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Richard M. Bird () (International Tax Program, Rotman School of Management, University of Toronto)

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Richard M. Bird

Abstract

In this paper we discuss some recent critical literature on VAT in developing countries relating to its revenue productivity, its equity, and its impact on the development of the formal economy. Illustrating our argument with reference to two recent country studies (of Ukraine and Jamaica) we conclude that while there is merit in many of the criticisms that have been made, on the whole if a country needs a general consumption tax, as most developing countries do, then VAT is the one to have in almost all cases – although this conclusion certainly does not imply that the VAT already in force in most such countries is necessarily the ‘best’ VAT for their circumstances.

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Publisher Info
Paper provided by International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto in its series International Tax Program Papers with number 0602.

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Length: 28 Pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:ttp:itpwps:0602

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Paper
- Richard Bird & Pierre-Pascal Gendron, 2006. "Is VAT the Best Way to Impose a General Consumption Tax in Developing Countries," International Studies Program Working Paper Series, at AYSPS, GSU paper0618, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]

Find related papers by JEL classification:
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-03-25 (All new papers)
NEP-PBE-2006-03-25 (Public Economics)

Cited by:
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Jayati Ghosh, 2007. "Macroeconomics and Growth Policies," Policy Notes 2, United Nations, Department of Economics and Social Affairs. [Downloadable!]
Roy Bahl & Sally Wallace, 2007. "From Income Tax to Consumption Tax? The Case of Jamaica," International Studies Program Working Paper Series, at AYSPS, GSU paper0712, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
Other versions:
- Roy Bahl & Sally Wallace, 2007. "From Income Tax to Consumption Tax?. The Case of Jamaica," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(3), pages 396-414, September. [Downloadable!] (restricted)

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