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Is VAT the Best Way to Impose a General Consumption Tax in Developing Countries?

Author

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  • Richard M. Bird

    () (International Tax Program, Rotman School of Management, University of Toronto)

Abstract

In this paper we discuss some recent critical literature on VAT in developing countries relating to its revenue productivity, its equity, and its impact on the development of the formal economy. Illustrating our argument with reference to two recent country studies (of Ukraine and Jamaica) we conclude that while there is merit in many of the criticisms that have been made, on the whole if a country needs a general consumption tax, as most developing countries do, then VAT is the one to have in almost all cases – although this conclusion certainly does not imply that the VAT already in force in most such countries is necessarily the ‘best’ VAT for their circumstances.

Suggested Citation

  • Richard M. Bird, 2006. "Is VAT the Best Way to Impose a General Consumption Tax in Developing Countries?," International Tax Program Papers 0602, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
  • Handle: RePEc:ttp:itpwps:0602
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    File URL: http://www-2.rotman.utoronto.ca/iib/ITP0602.pdf
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    Cited by:

    1. Dagney Faulk & Jorge Martinez-Vazquez & Sally Wallace, 2007. "Using Human-Capital Theory to Establish a Potential-Income Tax," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(3), pages 415-435, September.
    2. Pelle Ahlerup & Thushyanthan Baskaran & Arne Bigsten, 2015. "Tax Innovations and Public Revenues in Sub-Saharan Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 51(6), pages 689-706, June.
    3. repec:asi:adprev:2018:p:41-49 is not listed on IDEAS
    4. Jorge Martinez-Vazquez & Richard M. Bird, 2011. "Value-Added Tax: Onward and Upward?," Chapters,in: The Elgar Guide to Tax Systems, chapter 6 Edward Elgar Publishing.
    5. Antonio David & Martin Petri, 2013. "Inclusive Growth and the Incidence of Fiscal Policy in Mauritius; Much Progress, But More Could be Done," IMF Working Papers 13/116, International Monetary Fund.
    6. Roy Bahl & Sally Wallace, 2007. "From Income Tax to Consumption Tax?. The Case of Jamaica," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(3), pages 396-414, September.
    7. Jayati Ghosh, 2007. "Macroeconomics and Growth Policies," Policy Notes 2, United Nations, Department of Economics and Social Affairs.
    8. Astha Sen & Sally Wallace, 2017. "The Revenue Efficiency of India’s Sub-National VAT," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1705, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    9. Rolando Ossowski & Alberto Gonzáles-Castillo, 2012. "Manna from Heaven: The Impact of Nonrenewable Resource Revenues on Other Revenues of Resource Exporters in Latin America and the Caribbean," IDB Publications (Working Papers) 4045, Inter-American Development Bank.
    10. Mulendu, Mbusa, 2015. "Transition Fiscale Et Regressivite Des Impots Domestiques Indirects En Afrique Sub-Saharienne
      [Fiscal Transition System And Indirect Taxes In Sub-Saharan Africa]
      ," MPRA Paper 71653, University Library of Munich, Germany, revised 2016.
    11. Mattéo Godin & Romain Houssa & Kelbesa Megersa, 2017. "The Performance of VAT in DGD-partner countries," BeFinD Working Papers 0116, University of Namur, Department of Economics.

    More about this item

    Keywords

    value-added tax; progressivity; informal economy; Ukraine; Jamaica.;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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