Taxation and Industrialization: Global Evidence from the Introduction of the Value Added Tax

Rabah Arezki, Frederick van der Ploeg, Rota-Graziosi, Grégoire and Van Dao Le

No 20346, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The introduction of the Value Added Tax (VAT) has been widely perceived as a successful instrument, boosting government revenue and stimulating industrialization. However, in countries that are heavily dependent on exports of natural resources the introduction of the VAT has led on average to lower tax revenues and did not stimulate industrialization. The VAT thus did not help these countries to diversify away from the natural resource sector contrary to its promise. This suggests that the VAT in those countries has failed and should be redesigned. The results indicate a novel channel for the resource curse hinging on the interaction between economic structure and the design of tax systems.

Keywords: Natural; resource (search for similar items in EconPapers)
JEL-codes: H25 O13 O14 (search for similar items in EconPapers)
Date: 2025-06
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