VAT Notches, Voluntary Registration, and Bunching: Theory and UK Evidence

79 Pages Posted: 8 Nov 2019

See all articles by Li Liu

Li Liu

International Monetary Fund (IMF)

Ben Lockwood

University of Warwick

Miguel Almunia

CUNEF

Eddy H.F. Tam

University of Oxford - Said Business School

Multiple version iconThere are 2 versions of this paper

Date Written: September 2019

Abstract

Using administrative tax records for UK businesses, we document both bunching in annual turnover below the VAT registration threshold and persistent voluntary registration by almost half of the firms below the threshold. We develop a conceptual framework that can simultaneously explain these two apparently conflicting facts. The framework also predicts that higher intermediate input shares, lower product-market competition and a lower share of business to consumer (B2C) sales lead to voluntary registration. The predictions are exactly the opposite for bunching. We test the theory using linked VAT and corporation tax records from 2004-2014, finding empirical support for these predictions.

Keywords: Tax revenue, Income tax revenue, Personal income taxes, Corporate income taxes, Tax systems, Value-Added Tax (VAT), Voluntary Registration, Bunching, WP, vat, compliance cost, final consumer, current-year, registration status

JEL Classification: H21, H25, H31, H32, E01, H71, H2, H83, K34

Suggested Citation

Liu, Li and Lockwood, Ben and Almunia, Miguel and Tam, Eddy H.F., VAT Notches, Voluntary Registration, and Bunching: Theory and UK Evidence (September 2019). IMF Working Paper No. 19/205, Available at SSRN: https://ssrn.com/abstract=3482288

Li Liu (Contact Author)

International Monetary Fund (IMF) ( email )

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

Ben Lockwood

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, CV4 8UW
United Kingdom

Miguel Almunia

CUNEF ( email )

Serrano Anguita 9
Madrid, Madrid 28004
Spain

HOME PAGE: http://www.miguelalmunia.eu

Eddy H.F. Tam

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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