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Efficiency Aspects of the Value Added Tax

Author

Listed:
  • Ruud A. De Mooij
  • Shafik Hebous
  • Michael Keen

Abstract

This paper examines the efficiency of the Value Added Tax (VAT), focusing on its role as a revenue-raising tool and its use to achieve non-revenue objectives. The analysis highlights the VAT's potential ability to generate revenue with minimal distortions, emphasizing its advantages over alternative taxes, such as turnover taxes and tariffs, particularly in minimizing the cascading effects of input taxation. The paper also explores the VAT as a macroeconomic policy tool, especially in counter-cyclical fiscal policy, and its potential to address environmental and health objectives. It concludes that a well-designed and implemented VAT is a highly efficient revenue-raising tool, surpassing other forms of consumption taxation, but cautions against its misuse in industrial policy and other contexts for which it is ill-suited.

Suggested Citation

  • Ruud A. De Mooij & Shafik Hebous & Michael Keen, 2025. "Efficiency Aspects of the Value Added Tax," CESifo Working Paper Series 12089, CESifo.
    • Handle: RePEc:ces:ceswps:_12089
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    File URL: https://www.ifo.de/DocDL/cesifo1_wp12089.pdf
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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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