The Effects of Vats on Government Balance Sheets

58 Pages Posted: 14 Sep 2017

See all articles by Alex Ufier

Alex Ufier

FDIC Center for Financial Research

Date Written: May 12, 2016


The Value Added Tax, VAT, has become a popular means of raising funds for governments around the world. Countries seeking to reduce variation in tax revenues as well as raise revenue to solve deficits often consider a VAT, and the IMF in particular has become an advocate for the tax for countries seeking tax reform. For all its popularity, its ability to deliver on these promises remains understudied. Countries with a lower cost of raising funds may instead choose to spend more instead of paying down their debts. This paper uses matching techniques to estimate the impact of a VAT on government debts and deficits. The tax is associated with falls in central government debt and deficits as well as expenditures as a share of GDP. There is limited evidence of increases in tax revenue and increases in stability of government spending. The choice of VAT rate is positively correlated with deficit reduction, and the effects of the tax are heterogeneous with respect to the probability of adoption of the treatment and what taxes it is replacing.

Keywords: Keywords: Survival Analysis, Value Added Tax, Matching, Debt, Deficits, Tax Revenue, Heterogeneity Analysis

JEL Classification: H2

Suggested Citation

Ufier, Alexander, The Effects of Vats on Government Balance Sheets (May 12, 2016). International Tax and Public Finance, Forthcoming, Available at SSRN:

Alexander Ufier (Contact Author)

FDIC Center for Financial Research ( email )

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