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Structural Transformation and Tax Efficiency

Author

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  • Jan Gottschalk
  • Laura Jaramillo
  • Mr. Serhan Cevik
  • Moussé Sow
  • Mr. Eric Hutton
  • Pooja Karnane

Abstract

Structural transformation has resulted in an increasing share of services in aggregate value-added in advanced and developing countries across the world. We analyze the impact of this shift into services on countries’ efficiency in collecting the value-added tax (VAT). The analysis is based on two alternative measures of VAT efficiency: (1) the VAT C-efficiency, using a broad panel of 134 countries over the period 1970-2014; and (2) the VAT gap using a more granular, proprietary dataset that draws on the results of IMF’s Revenue Administraion-Gap Analysis Program covering 24 countries over the period 2004-2016. We find that a higher share of services in aggregate value-added reduces the VAT efficiency, and that this adverse effect is mainly a result of a rise of non-tradable services, which in turn contributes to a narrowing of the VAT base.

Suggested Citation

  • Jan Gottschalk & Laura Jaramillo & Mr. Serhan Cevik & Moussé Sow & Mr. Eric Hutton & Pooja Karnane, 2019. "Structural Transformation and Tax Efficiency," IMF Working Papers 2019/030, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2019/030
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    Cited by:

    1. Elisey Leonov, Ilya Sokolov, 2020. "VALUE ADDED TAX COLLECTION: Identifying New Determinants [Сбор Налога На Добавленную Стоимость: Определение Новых Детерминантов]," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 42-65, December.
    2. Christou Anna & Eriotis Nikolaos & Lomis Ioannis & Papadakis Spyros & Thalassinos Eleftherios, 2021. "The Greek VAT Gap: The Influence of Individual Economic Sectors," European Research Studies Journal, European Research Studies Journal, vol. 0(4B), pages 851-882.
    3. Caro, Paolo Di & Sacchi, Agnese, 2020. "The heterogeneous effects of labor informality on VAT revenues: Evidence on a developed country," Journal of Macroeconomics, Elsevier, vol. 63(C).

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    Keywords

    WP; null hypothesis; VAT C-efficiency; real GDP;
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