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Short-run Distributional Effects of VAT Rate Change: Evidence from a consumption tax rate increase in Japan

David Cashin and Takashi Unayama ()

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: Households will purchase more items than usual prior to a value added tax (VAT) rate increase in order to avoid taxation. Since this type of arbitrage requires resources such as shopping time and storage space, the impacts of tax increases vary across households, which has brought distributional effects in the short-run. Using the case of a consumption tax rate increase in Japan in 1997, we show that households who are non-working, with non-working spouses and residing in larger houses, benefited from more arbitrage. To minimize short-run economic disturbances, step-by-step increases would be useful.

Pages: 34 pages
Date: 2012-05
New Economics Papers: this item is included in nep-acc
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Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:12029

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