Cascading, revenue neutrality and the VAT: Some theoretical results

Hiranya Mukhopadhyaya
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Hiranya Mukhopadhyaya: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: The conventional conclusion is that, ceteris paribus, a revenue-neutral VAT would have no impact on the aggregate price level, unless it elicits a supply response due to a lower degree of distortions. This paper shows that even if we ignore supply response, a revenue-neutral VAT can lead to higher output and lower price in a demand-constrained output regime. However, price will remain unchanged in a supply-constrained output regime.

Keywords: Value; added; tax (search for similar items in EconPapers)
JEL-codes: H20 H22 (search for similar items in EconPapers)
Pages: 15
Date: 1997-04
Note: Working Paper 3, 1997
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Persistent link: https://EconPapers.repec.org/RePEc:npf:wpaper:97/3

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