Does a Value‐added Tax Increase Economic Efficiency?

Adhikari, Bibek

doi:10.1111/ecin.12847

Cited by 24 publications

(32 citation statements)

References 66 publications

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“…Further, Riera-Crichton et al (2016), assembling a quarterly VAT dataset for 14 industrial countries, investigate the output effect of VAT rate changes. 8 In the meantime, Adhikari (2020) emphasizes that the VAT adoption has a different output effect depending on the income level of the country, citing some distinctive features of developing countries such as the prevalence of tax evasion.…”

Section: Related Literaturementioning

confidence: 99%

The value-added tax and growth: design matters

Acosta‐Ormaechea

Morozumi

2021

Int Tax Public Finance

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Previous research has shown that changes in the composition of tax revenue affect long-run growth. However, little is yet known about whether the way tax revenue is raised matters for growth. This paper examines whether, in the context of OECD countries, a revenue-neutral increase in the value-added tax (VAT), offset by a fall in income taxes, may have different effects on long-run growth depending on how the VAT is raised. We show that a revenue-neutral rise in the VAT promotes growth when it is raised through a rise in C-efficiency, while it does not when it is raised through a rise in the standard VAT rate, the rate applied to the largest portion of taxed consumption. C-efficiency measures the departure of the VAT from a perfectly enforced tax levied at a single rate on all consumption, which in advanced economies is largely due to the VAT that is not levied because of exemptions and reduced rates. Thus, our results suggest that an increase in C-efficiency, possibly reflecting the broadening of the VAT base through fewer exemptions and a more uniform rate structure with fewer reduced rates, promotes growth more than a rise in the standard rate.

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Section: Related Literaturementioning

confidence: 99%

The value-added tax and growth: design matters

Acosta‐Ormaechea

Morozumi

2021

Int Tax Public Finance

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“…This has left only Oman, Kuwait and Qatar as the only GCC countries, which have not implemented VAT as a revenue generation stream as of yet. Table 1 shows the list of world regions implementing VAT, which is also known as Goods and Service Tax (GST) in different countries: There is no doubt that VAT is among the most widely adopted form of taxation by most countries worldwide (Note 2); nevertheless, evidences supporting the efficiency of VAT as a taxation system are still ambiguous (Adhikari, 2020). Generally, taxation is defined as a social cost that members of such society must bear in order to provide returns and balanced facilities to societies (Zanganeh, Sheikhi & Abdollahi, 2018).…”

Section: Literature Reviewmentioning

confidence: 99%

Valued Added Tax (VAT) Impact on Economic and Societal Well-Beings (Pre-and Post COVID19): A Perception Study From Saudi Arabia

Shukeri

Alfordy

2020

IJFR

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The Kingdom of Saudi Arabia (KSA) has realized that merely relying on oil reserves, as the main income source will stop the country from achieving sustainable economic growth due to the instability of world oil market prices and its uncertainties. Hence, the first Value Added Tax (VAT) has been introduced in KSA in 2018 following to the urge by International Monetary Fund (IMF). However, VAT implementation in the Kingdom is not free from criticisms since its citizens, particularly younger generation, have been used to tax-free livings. In addition, the global health pandemic of COVID19 has hit major economies worldwide. In correspondence, KSA has decided to increase its VAT rate to 15% from 5% by the 1st of July 2020, which may suggest a different pattern of consumption behaviour since the rate has been drastically increased. Therefore, this study aims to examine the perception of Saudi younger generation on the acceptance of VAT based on five categorical factors underlying Saudi younger generation’s level of acceptance or rejection of VAT, namely; tax system effectiveness (TSE), income generation sources (IGS), income inequality (II), system knowledge (SK) and global practice (GP). The study also is set to examine the impact of VAT on Saudi younger generation’s consumption behaviour. Using a sample of 460 respondents, the findings reveal that most of the respondents (89.6%) are aware of VAT implementation. However, the negative perceptions found from the analysis shows that VAT is not an efficient tax system to be implemented (average TSE = 45.6% less favourable) as the VAT system does not provide income inequality among citizens (average II= 45.3 percent less favourable). Moreover, the results also show that VAT implementation does not affect the consumption behaviour, suggesting that Saudi younger generation still spends regardless of VAT. Limited studies among the GCC academics on VAT has motivated this research to be among the first attempt to document such impact and to consider it in lights of new legislative changes due to COVID-19. Hence, this study is both timely and relevant to provide new understandings to responsible authorities regarding its VAT system, its acceptance and impacts on consumption behaviour in lights of COVID-19.

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“…We now turn to the data sources and variables that will be used to estimate the regression model. I obtain information on the VAT across the world from Ebrill, Keen, and Bodin (), supplemented by Adhikari et al (). From these sources, I make use of the date of VAT adoption, the VAT rate at adoption and information about policies that the VAT replaced.…”

Section: Datamentioning

confidence: 99%

Does the Vat Tax Exports?

Sharma

2019

Economic Inquiry

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While a VAT should in principle be neutral with respect to international trade, it may in practice function as a tax on exporters' input purchases if firms receive incomplete VAT refunds. Using data for over 100 countries that span the majority of historical VAT adoption episodes, this paper finds that—consistent with this hypothesis—the VAT reduces the exports of an industry with a 10 percentage point higher intermediate goods share of output by over 8% relative to an industry with a lower share. This effect is driven by developing countries and is absent for high‐income countries. (JEL F13, F14, H25, H87, O11)

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Does a Value‐added Tax Increase Economic Efficiency?

Cited by 24 publications

References 66 publications

The value-added tax and growth: design matters

The value-added tax and growth: design matters

Valued Added Tax (VAT) Impact on Economic and Societal Well-Beings (Pre-and Post COVID19): A Perception Study From Saudi Arabia

Does the Vat Tax Exports?

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