The Incidence of VAT Evasion

Who benefits from the evasion of value added taxes (VAT)? Using a reform that enforced VAT on previously non-compliant large retailers in Armenia, we estimate a onethird passthrough of the tax burden on prices. This suggests that pre-enforcement evasion rents were broadly shared with consumers through lower prices. Our theoretical and empirical results explain this low passthrough rate by the supply-chain effects and second-order compliance responses of firms to VAT enforcement. Our distributional analysis shows that households at the bottom of the income distribution benefit more from the rents of evasion.

Keywords: Value added tax, Incidence, Evasion, Enforcement, Distributional Effects

JEL Classification: D11, H22, H26

Suggested Citation: Suggested Citation

Asatryan, Zareh and Gomtsyan, David, The Incidence of VAT Evasion (2020). ZEW - Centre for European Economic Research Discussion Paper No. 20-027, Available at SSRN: https://ssrn.com/abstract=3633730 or http://dx.doi.org/10.2139/ssrn.3633730