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The (Non-)Neutrality of Value-Added Taxation

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  • Georg Schneider
  • Frank Stähler
  • Georg U. Thunecke

Abstract

Border adjustment taxes like the value-added tax (VAT) are commonly regarded to promote efficiency and equity due to their de jure trade neutrality. We analyse the effects of the VAT on trade in final goods in the European Union (EU) from 1988 to 2019. We find that the VAT is de facto non-neutral. A one percentage point VAT increase implies a 5.45% reduction of foreign imports relative to internal trade. These effects are not driven by institutional quality, EU accession, or preferential Common Market access.

Suggested Citation

  • Georg Schneider & Frank Stähler & Georg U. Thunecke, 2022. "The (Non-)Neutrality of Value-Added Taxation," CESifo Working Paper Series 9663, CESifo.
    • Handle: RePEc:ces:ceswps:_9663
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    More about this item

    Keywords

    value-added taxation; trade neutrality; discrimination; border adjustment;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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