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“Bye Bye Cascada:” Replacing Turnover Taxes with Subnational VAT in Argentina

Author

Listed:
  • Gabriel Michelena

    (MESi-IIEP-UBA)

  • Pedro Elosegui

    (IIEP - UBA)

  • Marcos Herrera Gómez

    (CONICET-CIANECO-UNRC)

Abstract

Argentina’s Ingresos Brutos (IIBB) is a cascading turnover tax levied at every production stage under the origin principle, and constitutes the primary tax revenue source for provincial governments. Using a five-region, twenty-sector multi-regional input-output (MRIO) model built on Argentina’s 2019 national accounts and updated with 2025 statutory IIBB rates, we compute the vertically integrated IIBB rate for each sector-region pair, defined as the full tax burden per unit of final demand, including all upstream cascade. The national effective rate is 5.4% compared to a statutory average of 2.9%; cascade multipliers range from 1.3× to 6.0× across sectors. The Pampeana region accounts for approximately 78% of total estimated IIBB revenue. We derive two equivalent VAT rates per region: a revenue-equivalent rate tIVA,R, matching total IIBB collection divided by the household consumption base, and a welfare-equivalent rate tIVA,W, which calculates the cascade burden actually borne by local consumption. Nationwide, tIVA,R = 8.7% and tIVA,W = 6.2%; the 2.5 percentage-point wedge equals the IIBB embedded in chains feeding exports, investment, and government purchases, which a reform could offset. At the regional level, tIVA,R ranges from 6.9% (Cuyo) to 9.2% (Sur), with tIVA,W from 5.7% to 6.8%. Under the origin principle, all five regionscollect more than their own consumption base would generate under destination-based taxation, so a switch to the destination principle requires compensating transfers. The tIVA,W estimates are a lower bound on the revenue-neutral replacement rate: they assume full compliance and a household-only base. Broadening the base to investment and exports (the policy gap), or accounting for informality and evasion (the compliance gap), would each raise the required rate.

Suggested Citation

  • Gabriel Michelena & Pedro Elosegui & Marcos Herrera Gómez, 2026. "“Bye Bye Cascada:” Replacing Turnover Taxes with Subnational VAT in Argentina," Working Papers 404, Red Nacional de Investigadores en Economía (RedNIE).
  • Handle: RePEc:aoz:wpaper:404
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    File URL: https://rednie.eco.unc.edu.ar/files/DT/404.pdf
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    References listed on IDEAS

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    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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