VAT Treatment of the Financial Services: Implications for the Real Economy

Fatih Yilmaz and Ï¿½smail Baydur

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: Financial institutions are exempt from the Value-Added Tax in most countries. We develop a general equilibrium model with endogenous firm entry and a banking sector to accommodate three key distortions related to exempt treatment: (i) self-supply bias in the banking sector, (ii) under-taxation of payment services, and (iii) input distortions in the business sector and tax cascading. We calibrate our model to the average of Germany, France and the U.K data. Our results show that repealing exempt treatment always increases tax revenues. However, welfare gains occur only at low VAT rates due to the hump-shaped VAT Laffer curve.

Keywords: VAT; Financial services; Exempt treatment; Laffer curve; Heterogeneous firms (search for similar items in EconPapers)
JEL-codes: G20 H21 H24 H25 H30 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-acc, nep-bec, nep-dge and nep-pbe
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN ... g+Paperss/2018/18-15 (application/pdf)

Related works:
Journal Article: VAT Treatment of the Financial Services: Implications for the Real Economy (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1815

Access Statistics for this paper

More papers in Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey Contact information at EDIRC.
Bibliographic data for series maintained by Sermet Pekin () and Ilker Cakar () and ().