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Value-Addes Tax and Shadow Economy : the Role of Input-Output Linkages (revision of CentER Discussion Paper 2013-036)

Author

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  • Hoseini, Mohammad

    (Tilburg University, Center For Economic Research)

Abstract

Under the VAT, formal traders report their purchases to the administration for a deduction in their VAT bill. This paper models this third-party reporting feature of the VAT in an input-output economy and quantifies it among different activities using a forward linkages index. The administration can reduce the size of shadow economy by reallocating visiting audits to backwardly linked activities and cross-checking VAT payments with input credit claims in forwardly linked activities. Empirical evidence from Indian service sector justifies the assumptions and suggests a significant increase in the tax compliance of forwardly linked activities following VAT adoption in 2003.

Suggested Citation

  • Hoseini, Mohammad, 2015. "Value-Addes Tax and Shadow Economy : the Role of Input-Output Linkages (revision of CentER Discussion Paper 2013-036)," Discussion Paper 2015-058, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:56358907-5e47-49f6-9a74-f59c0b69c49b
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    References listed on IDEAS

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    Cited by:

    1. Hoseini, M., 2014. "Misreporting in the Value-Added Tax and the Optimal Enforcement," Discussion Paper 2014-061, Tilburg University, Center for Economic Research.
    2. Beck, T.H.L. & Hoseini, M., 2014. "Informality and Access to Finance : Evidence from India," Discussion Paper 2014-052, Tilburg University, Center for Economic Research.

    More about this item

    Keywords

    Value-added tax; Informality; Tax enforcement; Linkage analysis;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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