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Aspects of Interjurisdictional Sharing of the Value-Added Tax

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  • Howell H. Zee

    (International Monetary Fund)

Abstract

The sharing of consumption taxes between different levels of government has come to the fore in a number of developing countries in recent years with respect to the VAT. Employing a simple model that abstracts from considerations of equalization transfers and complications of tax competition, this article inquires about the determinants of an optimal arrangement for interjurisdictional sharing of the VAT base and revenue, and derives explicit solutions for the optimal central and local VAT rates, as well as the optimal revenue-sharing ratio between central and local governments on a derivation basis. The central finding is that an optimal VAT sharing arrangement is generally characterized by the simultaneous sharing of the VAT base and of the VAT revenue. The nature of the optimal solutions is shown to depend on the interactions among interjurisdictional differences in population, income, and the level of local government expenditure relative to local tax base.

Suggested Citation

  • Howell H. Zee, 2008. "Aspects of Interjurisdictional Sharing of the Value-Added Tax," Public Finance Review, , vol. 36(2), pages 147-168, March.
    • Handle: RePEc:sae:pubfin:v:36:y:2008:i:2:p:147-168
    DOI: 10.1177/1091142106295767
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    References listed on IDEAS

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    1. Wellisch,Dietmar, 2000. "Theory of Public Finance in a Federal State," Cambridge Books, Cambridge University Press, number 9780521630351, November.
    2. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 269-304, June.
    3. Richard Bird & Pierre Gendron, 1998. "Dual VATs and Cross-Border Trade: Two Problems, One Solution?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(3), pages 429-442, July.
    4. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
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    1. Aisha Saderuddin & Yasser Barghathi, 2018. "The Impacts of Introduction of VAT On the Audit Profession and Economy in The UAE: Auditors’ Perspective," Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 17(3), pages 406-439, September.

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