Small Firm Growth and the VAT Threshold: Evidence for the UK

Li Liu, Ben Lockwood and Tam. Eddy
Additional contact information
Ben Lockwood: University of Warwick
Tam. Eddy: King's College london

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: This paper studies the effect of the VAT threshold on firm growth in the UK, using exogenous variation over time in the threshold, combined with turnover bin fixed effects, for identification. We find robust evidence that annual growth in turnover slows by about 1 percentage point when firm turnover gets close to the threshold, and weaker evidence of higher growth when the threshold is passed. Growth in firm costs shows a similar pattern, indicating that the response to the threshold is likely to be a real response rather than an evasion response. Firms that habitually register even when their turnover is below the VAT threshold (voluntary registered firms) have growth that is unaffected by the threshold, whereas firms that select into the Flat-Rate Scheme have a less pronounced slowdown response than other firms. Similar patterns of turnover and cost growth around the threshold are also observed for non-incorporated businesses. Finally, simulation results clarify the relative contribution of "noncrossers" ( firms who eventually register for VAT) and "non-crossers" (those who permanently stay below the threshold) in explaining our empirical findings. JEL Classification: H22 ; H25 ; H26

Keywords: VAT; size-based threshold; firm growth (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-bec, nep-ent, nep-eur, nep-iue, nep-pbe and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://warwick.ac.uk/fac/soc/economics/research/w ... _1418_-_lockwood.pdf

Related works:
Working Paper: Small Firm Growth and the VAT Threshold Evidence for the UK (2024)
Working Paper: Small Firm Growth and the VAT Threshold: Evidence for the UK (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1418

Access Statistics for this paper

More papers in The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Margaret Nash ().