Domestic Taxes and Export Composition: Evidence from VAT Adoption Worldwide

Rishi Sharma

No 2017-4, Working Papers from Department of Economics, Colgate University

Abstract: In principle, a VAT should be neutral with regards to both the level and composition of exports. In practice, this may not be the case because exporters in many countries receive incomplete VAT refunds. When VAT refunds are incomplete, the exports of industries that rely heavily on intermediate goods are especially likely to be negatively affected by a VAT. Motivated by these considerations, this paper uses trade data for over 100 countries spanning 1962-2015 to evaluate the differential effect of the VAT across industries. I find that an industry with a 10% point higher intermediate goods share of output sees a decline in exports of over 8% relative to an industry with a lower share. This effect is particularly pronounced for low-income countries and essentially absent for high-income countries.

Keywords: value-added tax; exports; export composition (search for similar items in EconPapers)
JEL-codes: F10 F13 F14 H25 H87 (search for similar items in EconPapers)
Date: 2017-01-01, Revised 2017-07-02
New Economics Papers: this item is included in nep-int and nep-pbe
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