The Anatomy of the VAT

29 Pages Posted: 8 Jun 2013

See all articles by Michael Keen

Michael Keen

International Monetary Fund (IMF) - Fiscal Affairs Department; CESifo (Center for Economic Studies and Ifo Institute); Institute for Fiscal Studies (IFS)

Date Written: May 2013

Abstract

This paper sets out some tools for understanding the performance of the value added tax (VAT). Applying a decomposition of VAT revenues (as a share of GDP) to the universe of VATs over the last twenty years, it emerges that developments have been driven much less by changes in standard rates than by changes in ‘C-efficiency’ (an indicator of the departure of the VAT from a perfectly enforced tax levied at a uniform rate on all consumption). Decomposing C-efficiency into a ‘policy gap’ (in turn divided into effects of rate differentiation and exemption) and a ‘compliance’ gap (reflecting imperfect implementation), results pieced together for EU members suggest that the former are in almost all cases far larger than the latter, with rate differentiation and exemptions playing roles that differ quite widely across countries.

Keywords: Value added tax, Tax revenues, Tax rates, tax gaps, tax compliance, vat revenue, consumption tax, tax administration, tax journal, national tax journal, tax system, income groups, tax administrations, higher income, uniform tax, vat compliance, commodity taxation, tax structure, input taxes, taxpayer compliance, international tax, optimal taxation, tax design, tax analysis, tax authorities, effective tax rates, input taxation, vat receipts

JEL Classification: H21, H25, H83

Suggested Citation

Keen, Michael, The Anatomy of the VAT (May 2013). IMF Working Paper No. 13/111. Available at SSRN: https://ssrn.com/abstract=2276346

Michael Keen (Contact Author)

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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