Cascading, Revenue Neutrality and the VAT: Some Theoretical Results

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

Indian Economic Review, 2000, vol. 35, issue 1, 97-107

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.

JEL-codes: H20 H22 (search for similar items in EconPapers)
Date: 2000
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