Calculating the Optimal Small Business Exemption Threshold for a U.S. Vat

Edith Brashares, Matthew Knittel, Gerald Silverstein and Alexander Yuskavage

National Tax Journal, 2014, vol. 67, issue 2, 283-320

Abstract: Most countries with a VAT have a tax exemption for small businesses that have taxable sales below a certain threshold. The exemption reduces both compliance costs for small businesses and administrative costs for the government. We use a static analysis of the U.S. economy to determine the optimal level of taxable sales for this threshold and analyze the potential behavioral response by businesses. For a 10 percent VAT rate, we fnd that the optimal level for the threshold in the United States is $200,000, and that behavioral responses may be signifcant close to the threshold.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:ntj:journl:v:67:y:2014:i:2:p:283-320

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