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Value-Added Tax and Economic Efficiency: Role of Country Governance

Author

Listed:
  • Chan Sok-Gee
  • Ramly Zulkufly
  • Zulkhairi Mustapha Mohd

Abstract

This paper examines the impact of VAT on economic efficiency, which while regarded as distortionary remains inevitable for economic development. Using data from 115 countries from 1984 to 2014, this research further investigates the moderating role of country governance on the link between VAT and economic efficiency. The results suggest that the extent to which country governance mitigates the effect of VAT on economic efficiency is contingent upon the way the country groups prioritize the development of each institutional factor. We find that high corporate tax countries benefit more from higher quality country governance. These findings confirm the role of country governance in better enforcement of tax policy to create less detrimental effects for economic growth. Therefore, better country governance makes taxation more affordable in high corporate tax countries. Key words: Economic efficiency, Value-added tax, Country governance, Generalized method of moments, Data envelopment analysis. JEL: E69, H25, O11, O43, C23.

Suggested Citation

  • Chan Sok-Gee & Ramly Zulkufly & Zulkhairi Mustapha Mohd, 2021. "Value-Added Tax and Economic Efficiency: Role of Country Governance," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 68(3), pages 325-358.
    • Handle: RePEc:voj:journl:v:68:y:2021:i:3:p:325-358:id:597
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    More about this item

    Keywords

    Economic efficiency; Value-added tax; Country governance; Generalized method of moments; Data envelopment analysis;
    All these keywords.

    JEL classification:

    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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