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Cascading, revenue neutrality and the VAT: Some theoretical results

Author

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  • Mukhopadhyaya, Hiranya

    (National Institute of Public Finance and Policy)

Abstract

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.

Suggested Citation

  • Mukhopadhyaya, Hiranya, 1997. "Cascading, revenue neutrality and the VAT: Some theoretical results," Working Papers 97/3, National Institute of Public Finance and Policy.
  • Handle: RePEc:npf:wpaper:97/3
    Note: Working Paper 3, 1997
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    File URL: http://www.nipfp.org.in/working_paper/wp_1997_03.pdf
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    More about this item

    Keywords

    Value added tax;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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