FAT or VAT? The Financial Activities Tax as a Substitute to Imposing Value Added Tax on Financial Services
AbstractThis paper analyzes revenue and welfare effects of implementing a FAT both from a theoretical and a quantitative perspective. The theoretical analysis allows us to derive expressions for the revenue effects and the deadweight loss in a general equilibrium setting, which can be quantified with a minimum of information about the economy and key elasticities. Using data for Germany, the empirical quantification suggests that introducing a modest FAT with a rate of 3% results in a revenue gain of about 1.312 bn. If this revenue gain is used to reduce distorting labor taxes, the results point at a welfare gain of 1.092 bn. Comparing these results with Buettner and Erbe (2012), we find that the introduction of a FAT of 3% would generate similar revenue and welfare effects as a repeal of the financial sector VAT exemption (with a 19% VAT rate). However, taxing financial services through FAT may exert adverse location effects on financial service production. --
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Bibliographic InfoPaper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79959.
Date of creation: 2013
Date of revision:
Find related papers by JEL classification:
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-02 (All new papers)
- NEP-PBE-2014-02-02 (Public Economics)
- NEP-PUB-2014-02-02 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- European Commission, 2010. "Financial Sector Taxation," Taxation Papers 25, Directorate General Taxation and Customs Union, European Commission.
- Lawrence H. Goulder & Roberton C. Williams III, 2003. "The Substantial Bias from Ignoring General Equilibrium Effects in Estimating Excess Burden, and a Practical Solution," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 898-927, August.
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