Cascading, Revenue Neutrality and the VAT: Some Theoretical Results
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.
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Volume (Year): 35 (2000)
Issue (Month): 1 (January)
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