Structural Transformation and Tax Efficiency

33 Pages Posted: 8 Apr 2019

See all articles by Serhan Cevik

Serhan Cevik

International Monetary Fund (IMF)

Jan Gottschalk

International Monetary Fund (IMF) - Policy Development and Review Department

Eric Hutton

International Monetary Fund (IMF)

Laura Jaramillo

International Monetary Fund (IMF)

Pooja Karnane

International Monetary Fund (IMF)

Moussé Sow

International Monetary Fund; Université d'Auvergne - Clermont 1 - Centre d'Etudes et de Recherches sur le Developpement International (CERDI)

Date Written: February 2019

Abstract

Structural transformation has resulted in an increasing share of services in aggregate value-added in advanced and developing countries across the world. We analyze the impact of this shift into services on countries' efficiency in collecting the value-added tax (VAT). The analysis is based on two alternative measures of VAT efficiency: (1) the VAT C-efficiency, using a broad panel of 134 countries over the period 1970-2014; and (2) the VAT gap using a more granular, proprietary dataset that draws on the results of IMF's Revenue Administraion-Gap Analysis Program covering 24 countries over the period 2004-2016. We find that a higher share of services in aggregate value-added reduces the VAT efficiency, and that this adverse effect is mainly a result of a rise of non-tradable services, which in turn contributes to a narrowing of the VAT base.

Keywords: Tax revenue, Financial statistics, Consumption taxes, Revenue measures, Economic growth, Structural transformation, tax efficiency, value-added tax, C-efficiency ratio, tax gap, non-tradable, vat rate, vat, government effectiveness

JEL Classification: E32, H20, H21, H25, H2, E01, K34, H83, H71

Suggested Citation

Cevik, Serhan and Gottschalk, Jan and Hutton, Eric and Jaramillo, Laura and Karnane, Pooja and Sow, Moussé, Structural Transformation and Tax Efficiency (February 2019). IMF Working Paper No. 19/30. Available at SSRN: https://ssrn.com/abstract=3367414

Serhan Cevik (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Jan Gottschalk

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

700 19th St. NW
Washington, DC 20431
United States

Eric Hutton

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Laura Jaramillo

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Pooja Karnane

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Moussé Sow

International Monetary Fund ( email )

1900 Pennsylvania Avenue, NW
Washington, DC 20431
United States

Université d'Auvergne - Clermont 1 - Centre d'Etudes et de Recherches sur le Developpement International (CERDI) ( email )

65 Boulevard Francois Mitterrand
63000 Clermont-Ferrand Cedex 1
France

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