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Cascading, Revenue Neutrality and the VAT: Some Theoretical Results

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  • Hiranya Mukhopadhyay

    (National Institute of Public Finance and Policy)

Abstract

The conventional conclusion is that, ceteris paribus, a revenue-neutral VAT would have no impact on the aggregate price level, unless it elicits a supply response due to a lower degree of distortions. This paper shows that even if we ignore supply response, a revenue-neutral VAT can lead to higher output and lower price in a demand-constrained output regime. However, price will remain unchanged in a supply-constrained output regime.

Suggested Citation

  • Hiranya Mukhopadhyay, 2000. "Cascading, Revenue Neutrality and the VAT: Some Theoretical Results," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 35(1), pages 97-107, January.
  • Handle: RePEc:dse:indecr:v:35:y:2000:i:1:p:97-107
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    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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