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THE VAT LAFFER CURVE AND THE BUSINESS CYCLE

Francisca Oliveira () and Leonardo Costa ()

No 2, Working Papers de Economia (Economics Working Papers) from Católica Porto Business School, Universidade Católica Portuguesa

Abstract: A VAT Laffer Curve is estimated for the EU-27 countries in the period 2000-2010. Results show that countries such as Portugal are already in the prohibitive range of the curve. Structural differences exist between low growth years and high growth years. Collected VAT revenue is smaller in low growth years than in high growth years, which illustrates the existence of a VAT automatic stabilizer effect. The VAT rate that maximizes VAT revenue is slightly higher in low growth years, which can be explained by changes in the structure of consumption and of VAT collection enforcement. A procyclical VAT rate policy increases the underlying business cycle volatility and may also have as an outcome the increase of overall government intertemporal collected VATR.

Keywords: VAT Laffer Curve; EU-27; Portugal; Business Cycle (search for similar items in EconPapers)
Pages: 16 pages
Date: 2013-09
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:cap:wpaper:022013

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