What impairs the ‘money machine’ of VAT in developing countries?
Harsha Konara Mudiyanselage () and
Shawn Xiaoguang Chen ()
Additional contact information
Harsha Konara Mudiyanselage: University of Western Australia
Shawn Xiaoguang Chen: University of Western Australia
International Tax and Public Finance, 2022, vol. 29, issue 5, No 3, 1128-1159
Abstract The paper investigates the impact of VAT introduction in 127 developing countries on tax capacity and underlying mechanisms. Using difference-in-difference with VAT adopting neighbours as the instrumental variable, we show that VAT increases the share of tax in GDP. However, the increase is mostly channelled through the increase in effective tax rate, while creating an extra tax burden on the existing firms and leading to shrinking tax base. Moreover, the informational role of VAT is not as effective as usually alleged in broadening the tax base by inducing informal firms into the formal sector.
Keywords: Value added tax; Tax capacity; Informal economy; H25; H26; O23 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s10797-021-09705-x Abstract (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:29:y:2022:i:5:d:10.1007_s10797-021-09705-x
Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2
Access Statistics for this article
International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf
More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().