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Value-added taxation in the EC after 1992: Some applied general equilibrium calculations


  • Fehr, Hans
  • Rosenberg, Christoph B.
  • Wiegard, Wolfgang


This paper examines the quantitative effects of the transitional system of value-added taxation for intra-EC trade after 1992, as recently adopted by the ECOFIN-Council. First, the administration of the current destination principle and the interim solution are described and a mathematical formalization is provided. A short representation of the empirical general equilibrium model featuring seven EC regions and 14 production sectors follows. Finally, the effects of a switch to the transitional system are examined theoretically and by using policy simulations. When decomposing welfare effects, international tax revenue shifts prove to dominate, while substitution effects have relatively little influence on economic welfare. A generous arrangement with regard to long distance shopping, opening tax arbitrage possibilities to final consumers, favours low tax countries at the cost of their EC partners.

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  • Fehr, Hans & Rosenberg, Christoph B. & Wiegard, Wolfgang, 1991. "Value-added taxation in the EC after 1992: Some applied general equilibrium calculations," Discussion Papers, Series II 149, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  • Handle: RePEc:zbw:kondp2:149

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    References listed on IDEAS

    1. Symons, Elizabeth & Walker, Ian, 1989. "The Revenue and Welfare Effects of Fiscal Harmonization for the UK," Oxford Review of Economic Policy, Oxford University Press, vol. 5(2), pages 61-75, Summer.
    2. Bhatia, Kul B., 1982. "Value-added tax and the theory of tax incidence," Journal of Public Economics, Elsevier, vol. 19(2), pages 203-223, November.
    3. Bhatia, Kul B., 1988. "Tax incidence in a hierarchical model," Journal of Public Economics, Elsevier, vol. 37(2), pages 221-242, November.
    4. 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.
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    Cited by:

    1. Boss, Alfred, 1999. "Do we need tax harmonization in the EU?," Kiel Working Papers 916, Kiel Institute for the World Economy (IfW).
    2. Plassmann, Florenz, 2005. "The advantage of avoiding the Armington assumption in multi-region models," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 777-794, November.

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