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Effects of past and new VAT reforms in Finland

Author

Listed:
  • Jouko Kinnunen
  • Timo Rauhanen
  • Juha Honkatukia

Abstract

We study the effects of recent VAT reforms in Finland. Our counterfactual scenarios try to find, whether other reforms would enhance economic efficiency without compromising equity. We use a recursive dynamic applied GE model (VATTAGE, coded in GEMPACK) to study the macro, industrial and distributional effects of VAT reforms. We discuss different ways of modeling labor market issues We show that counterfactual reforms abolishing different VAT reforms in favor of one, general VAT rate fares better than the current differential VAT rate system. However, we show that it is not always the case that decreasing income taxation boosts growth when VAT rate is rased simultaneously in a revenue-neutral manner.

Suggested Citation

  • Jouko Kinnunen & Timo Rauhanen & Juha Honkatukia, 2011. "Effects of past and new VAT reforms in Finland," EcoMod2011 3412, EcoMod.
    • Handle: RePEc:ekd:002625:3412
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    References listed on IDEAS

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