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The Incidence of VAT Evasion

Zareh Asatryan and David Gomtsyan

No 8666, CESifo Working Paper Series from CESifo

Abstract: Who benefits from the evasion of value added taxes (VAT)? Using a reform that enforced VAT on previously non-compliant large retailers in Armenia, we estimate a one-third passthrough of the tax burden on prices. This suggests that pre-enforcement evasion rents were broadly shared with consumers through lower prices. Our theoretical and empirical results explain this low passthrough rate by the supply-chain effects and second-order compliance responses of firms to VAT enforcement. Our distributional analysis shows that households at the bottom of the income distribution benefit more from the rents of evasion.

Keywords: value added tax; incidence; passthrough; evasion; enforcement; distributional effects (search for similar items in EconPapers)
JEL-codes: D11 H22 H26 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-acc, nep-iue, nep-pbe and nep-pub
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