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Cascading, revenue neutrality and the VAT: Some theoretical results

  • Mukhopadhyaya, Hiranya

    (National Institute of Public Finance and Policy)

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    The conventional conclusion is that, ceteris paribus, a revenue-neutral VAT would have no impact on the aggregate price level, unless it elicits a supply response due to a lower degree of distortions. This paper shows that even if we ignore supply response, a revenue-neutral VAT can lead to higher output and lower price in a demand-constrained output regime. However, price will remain unchanged in a supply-constrained output regime.

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    Paper provided by National Institute of Public Finance and Policy in its series Working Papers with number 97/3.

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    Length: 15
    Date of creation: Apr 1997
    Date of revision:
    Handle: RePEc:npf:wpaper:97/3
    Note: Working Paper 3, 1997
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