IDEAS home Printed from https://ideas.repec.org/a/sae/pubfin/v37y2009i1p27-46.html
   My bibliography  Save this article

Avoiding the Value Added Tax

Author

Listed:
  • Luiz de Mello

    (Organisation for Economic Co-operation and Development)

Abstract

This article develops a differential game of tax avoidance by modeling the interactions between a taxpayer and the tax authority. The solution to the game is a noncooperative Nash that depends on the resources used by the tax authority to enforce legislation and the cost borne by the taxpayer in tax compliance. Empirical evidence is provided for the value added tax (VAT) using a cross-section of Organisation for Economic Co-operation and Development (OECD) and non-OECD countries. VAT efficiency, defined as the ratio of collections as a share of consumption to the statutory rate, rises the lower the VAT rate, the lower the share of administrative costs in tax revenue (proxying for the efficiency of tax administration), the more pro-competition the regulatory framework in product markets (measuring non-tax incentives for noncompliance) and the better the country's governance indicators (regulatory quality, rule of law, and government effectiveness).

Suggested Citation

  • Luiz de Mello, 2009. "Avoiding the Value Added Tax," Public Finance Review, , vol. 37(1), pages 27-46, January.
  • Handle: RePEc:sae:pubfin:v:37:y:2009:i:1:p:27-46
    as

    Download full text from publisher

    File URL: http://pfr.sagepub.com/content/37/1/27.abstract
    Download Restriction: no

    References listed on IDEAS

    as
    1. Fredriksson, Per G. & List, John A. & Millimet, Daniel L., 2004. "Chasing the smokestack: strategic policymaking with multiple instruments," Regional Science and Urban Economics, Elsevier, vol. 34(4), pages 387-410, July.
    2. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
    3. Brueckner, Jan K. & Saavedra, Luz A., 2001. "Do Local Governments Engage in Strategic Property-Tax Competition?," National Tax Journal, National Tax Association, vol. 54(2), pages 203-230, June.
    4. Heyndels, Bruno & Vuchelen, Jef, 1998. "Tax Mimicking Among Belgian Municipalities," National Tax Journal, National Tax Association, vol. 51(n. 1), pages 89-101, March.
    5. Kind, Hans Jarle & Knarvik, Karen Helene Midelfart & Schjelderup, Guttorm, 2000. "Competing for capital in a 'lumpy' world," Journal of Public Economics, Elsevier, vol. 78(3), pages 253-274, November.
    6. Chris Doyle & Sweder Wijnbergen, 1994. "Taxation of foreign multinationals: A sequential bargaining approach to tax holidays," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 1(3), pages 211-225, October.
    7. Ludema, Rodney D. & Wooton, Ian, 2000. "Economic geography and the fiscal effects of regional integration," Journal of International Economics, Elsevier, pages 331-357.
    8. Jason M. Fletcher & Matthew N. Murray, 2006. "Competition over the Tax Base in the State Sales Tax," Public Finance Review, , vol. 34(3), pages 258-281, May.
    9. Egger, Peter & Pfaffermayr, Michael & Winner, Hannes, 2005. "Commodity taxation in a 'linear' world: a spatial panel data approach," Regional Science and Urban Economics, Elsevier, vol. 35(5), pages 527-541, September.
    10. Randall W. Eberts & Daniel P. McMillen, 1999. "Agglomeration Economies and Urban Public Infrastructure," Book chapters authored by Upjohn Institute researchers,in: Paul Cheshire & Edwin S. Mills (ed.), handbook or Regional and Urban Economics, volume 3, pages 1455-1495 W.E. Upjohn Institute for Employment Research.
    11. Masayoshi Hayashi & Robin Boadway, 2001. "An empirical analysis of intergovernmental tax interaction: the case of business income taxes in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 481-503, May.
    12. Rork, Jonathan C., 2003. "Coveting Thy Neighbors' Taxation," National Tax Journal, National Tax Association, vol. 56(4), pages 775-787, December.
    13. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, vol. 48(1), pages 1-23, February.
    14. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(2), pages 269-304, June.
    15. Bond, Eric W & Samuelson, Larry, 1986. "Tax Holidays as Signals," American Economic Review, American Economic Association, vol. 76(4), pages 820-826, September.
    16. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
    17. Fredriksson, Per G. & Millimet, Daniel L., 2002. "Strategic Interaction and the Determination of Environmental Policy across U.S. States," Journal of Urban Economics, Elsevier, vol. 51(1), pages 101-122, January.
    18. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
    19. Heyndels, Bruno & Vuchelen, Jef, 1998. "Tax Mimicking Among Belgian Municipalities," National Tax Journal, National Tax Association, vol. 51(1), pages 89-101, March.
    20. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
    21. Jan K. Brueckner, 2003. "Strategic Interaction Among Governments: An Overview of Empirical Studies," International Regional Science Review, , vol. 26(2), pages 175-188, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tigran Poghosyan, 2011. "Assessing the Variability of Tax Elasticities in Lithuania," IMF Working Papers 11/270, International Monetary Fund.
    2. Hashimzade, Nigar & Huang, Zhanyi & Myles, Gareth D., 2010. "Tax fraud by firms and optimal auditing," International Review of Law and Economics, Elsevier, vol. 30(1), pages 10-17, March.
    3. Aljoša Feldina & Sašo Polanec, 2012. "Underreporting and Minimum Wage," LICOS Discussion Papers 32412, LICOS - Centre for Institutions and Economic Performance, KU Leuven.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:pubfin:v:37:y:2009:i:1:p:27-46. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (SAGE Publications). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.