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Modelling value-added tax in the presence of multiproduction and differentiated exemptions

  • Giesecke, James A.
  • Tran, Nhi Hoang

We develop a framework for economy-wide modelling of value-added tax systems. Our framework models a number of complexities of VAT systems as they are implemented by tax agencies. In particular, we model multiple rates, multiple exemptions, multiple degrees of refundability across commodity users, and multi-product enterprises. A detailed VAT framework is important for correct modelling of VAT within a general equilibrium model. Such a framework is also of value in correctly representing the distribution of indirect tax payments within the database of a general equilibrium model, a prerequisite of accurate welfare analysis. We use the model to analyse the effects of simplifying Vietnam’s complex VAT system. We simplify the system by moving from three tax rates to one budget-neutral rate, while also removing many discretionary exemptions.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13914.

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Date of creation: 03 Mar 2009
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Handle: RePEc:pra:mprapa:13914
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  1. Kehoe, Timothy J. & Noyola, Pedro Javier & Manresa, Antonio & Polo, Clemente & Sancho, Ferran, 1988. "A general equilibrium analysis of the 1986 tax reform in Spain," European Economic Review, Elsevier, vol. 32(2-3), pages 334-342, March.
  2. Harrison, W Jill & Pearson, K R, 1996. "Computing Solutions for Large General Equilibrium Models Using GEMPACK," Computational Economics, Society for Computational Economics, vol. 9(2), pages 83-127, May.
  3. Binh Tran-Nam, 2001. "Use and Misuse of Tax Compliance Costs in Evaluating the GST," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 34(3), pages 279-290.
  4. Gottfried, Peter & Wiegard, Wolfgang, 1991. "Exemption versus zero rating : A hidden problem of VAT," Journal of Public Economics, Elsevier, vol. 46(3), pages 307-328, December.
  5. Charles Ballard & John Karl Scholz & John B. Shoven, 1987. "The Value-added Tax: A General Equilibrium Look at Its Efficiency and Incidence," NBER Chapters, in: Taxes and Capital Formation, pages 105-108 National Bureau of Economic Research, Inc.
  6. Toh, Mun-Heng & Lin, Qian, 2005. "An evaluation of the 1994 tax reform in China using a general equilibrium model," China Economic Review, Elsevier, vol. 16(3), pages 246-270.
  7. Bird,Richard & Gendron,Pierre-Pascal, 2007. "The VAT in Developing and Transitional Countries," Cambridge Books, Cambridge University Press, number 9780521877657.
  8. Stephen Marks, 2005. "Proposed changes to the value added tax: implications for tax revenue and price distortions," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 41(1), pages 81-95.
  9. Don Fullerton & Yolanda K. Henderson & John B. Shoven, 1982. "A Comparison of Methodologies in Empirical General Equilibrium Models of Taxation," NBER Working Papers 0911, National Bureau of Economic Research, Inc.
  10. Peter B. Dixon & Maureen T. Rimmer, 1999. "Changes in Indirect Taxes in Australia: A Dynamic General Equilibrium Analysis," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 32(4), pages 327-348.
  11. Dixon, Peter B. & Parmenter, B. R. & Powell, Alan A., 1984. "The role of miniatures in computable general equilibrium modelling : Experience from ORANI," Economic Modelling, Elsevier, vol. 1(4), pages 421-428, October.
  12. Jonathan Haughton & Shahidur R. Khandker, 2009. "Handbook on Poverty and Inequality," World Bank Publications, The World Bank, number 11985.
  13. Sijbren Cnossen, 1998. "Global Trends and Issues in Value Added Taxation," International Tax and Public Finance, Springer, vol. 5(3), pages 399-428, July.
  14. International Monetary Fund, 2007. "Vietnam; Statistical Appendix," IMF Staff Country Reports 07/386, International Monetary Fund.
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