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Does VAT reduce the instability of tax revenues?

Author

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  • Christian Hubert Ebeke

    () (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

  • Hélène Ehrhart

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this study, we examine whether or not the adoption of value-added tax (VAT) in developing countries is an effective way of stabilising tax revenues. Using a large panel of 103 developing countries observed over 1980-2008 and several alternative estimation methods in order to deal with the self-selection bias and the endogeneity issue inherent in VAT adoption, we found robust evidence that the presence of VAT leads to significantly lower tax revenue instability. On average, countries with VAT experience 40-50% less tax revenue instability than countries which do not have a VAT system. These effects decrease with the level of economic development and the openness of trade.

Suggested Citation

  • Christian Hubert Ebeke & Hélène Ehrhart, 2012. "Does VAT reduce the instability of tax revenues?," Working Papers halshs-00617272, HAL.
  • Handle: RePEc:hal:wpaper:halshs-00617272
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00617272v2
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    References listed on IDEAS

    as
    1. Bird,Richard & Gendron,Pierre-Pascal, 2011. "The VAT in Developing and Transitional Countries," Cambridge Books, Cambridge University Press, number 9781107401440.
    2. Joshua D. Angrist & Alan B. Krueger, 2001. "Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 69-85, Fall.
    3. Christian Ebeke & Helene Ehrhart, 2012. "Tax Revenue Instability in Sub-Saharan Africa: Consequences and Remedies," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 21(1), pages 1-27, January.
    4. Emran, M. Shahe & Stiglitz, Joseph E., 2005. "On selective indirect tax reform in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 599-623, April.
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    12. Combes, Jean-Louis & Ebeke, Christian, 2011. "Remittances and Household Consumption Instability in Developing Countries," World Development, Elsevier, vol. 39(7), pages 1076-1089, July.
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    Cited by:

    1. Pelle Ahlerup & Thushyanthan Baskaran & Arne Bigsten, 2015. "Tax Innovations and Public Revenues in Sub-Saharan Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 51(6), pages 689-706, June.

    More about this item

    Keywords

    Tax Instability; Value Added Tax; Macroeconomic Fluctuations;

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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