The Consequences of the Value-Added Tax on Inequality

41 Pages Posted: 28 Feb 2017

See all articles by Kaisa Alavuotunki

Kaisa Alavuotunki

Aalto University

Mika Haapanen

University of Jyväskylä - School of Business and Economics

Jukka Pirttilä

University of Tampere

Date Written: February 09, 2017

Abstract

This paper examines the impact of the introduction of the value-added tax on inequality and government revenues using newly released macro data. We present both conventional county fixed effect regressions and instrumental variable analyses, where VAT adoption is instrumented using the previous values of neighbouring countries VAT systems as an instrument. The results reveal – in contrast to earlier work – that the revenue consequences of the VAT have not been positive. The results indicate that income-based inequality has increased due to the VAT adoption, whereas consumption inequality has remained unaffected.

Keywords: tax policy, value-added tax, inequality, developing countries

JEL Classification: H230, O230

Suggested Citation

Alavuotunki, Kaisa and Haapanen, Mika and Pirttilä, Jukka, The Consequences of the Value-Added Tax on Inequality (February 09, 2017). CESifo Working Paper Series No. 6318. Available at SSRN: https://ssrn.com/abstract=2924448

Kaisa Alavuotunki

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

Mika Haapanen

University of Jyväskylä - School of Business and Economics ( email )

University of Jyväskylä
PO Box 35
FIN 40351, FIN-40014
Finland

Jukka Pirttilä (Contact Author)

University of Tampere

Tampere, FIN-33101
Finland

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