The (Non-)Neutrality of Value-Added Taxation

Georg Schneider, Frank Stähler and Georg U. Thunecke
Authors registered in the RePEc Author Service: Frank Stähler

Working Papers from Max Planck Institute for Tax Law and Public Finance

Abstract: Border adjustment taxes like the value-added tax (VAT) are commonly regarded as establishing a level-playing field for international competition. We employ a structural gravity model in order to analyse the effects of the VAT on trade in final goods in the European Union (EU). We find that the VAT is de facto non-neutral. A one percentage point VAT increase reduces aggregate imports and internal trade by 3.1% and implies a 1.8 to 5.4% reduction of imports relative to internal trade. Based on these findings, we conduct a counterfactual analysis and illustrate that VAT rate changes simply substantial welfare effects for an average country in the European Union.

Keywords: Structural gravity; value-added taxation; neutrality; discrimination; border adjustment (search for similar items in EconPapers)
JEL-codes: F10 F14 H24 (search for similar items in EconPapers)
Pages: 50
Date: 2023-09-15
New Economics Papers: this item is included in nep-eec, nep-int and nep-pbe
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Related works:
Working Paper: The (Non-)Neutrality of Value-Added Taxation (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:mpi:wpaper:tax-mpg-rps-2023-20

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