Value-added taxation and consumption

James Alm () and Asmaa El-Ganainy ()

International Tax and Public Finance, 2013, vol. 20, issue 1, 105-128

Abstract: One of the main rationales for taxing consumption rather than income is that it is believed that consumption taxes discourage consumption, encourage savings, and thus generate higher economic growth. However, empirical evidence on the actual effectiveness of consumption taxes in stimulating savings is very limited. In this paper, we estimate the impact of a broad-based consumption tax, the value-added tax (VAT), on the aggregate consumption of fifteen European Union countries over the period 1961–2005. Our empirical results indicate, across a variety of estimation methods and specifications, that a one percentage point increase in the VAT rate leads to roughly a one percent reduction in the level of aggregate consumption in the short run and to a somewhat larger reduction in the long run. Copyright Springer Science+Business Media, LLC 2013

Keywords: Value-added taxation; Consumption taxation; Savings; Economic growth; Generalized methods of moments estimation; H20; H25; H31 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (25)

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Working Paper: Value-added Taxation and Consumption (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:20:y:2013:i:1:p:105-128

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DOI: 10.1007/s10797-012-9217-0

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