The Incidence of VAT Evasion
68 Pages Posted: 30 Jun 2020 Last revised: 10 Nov 2020
Date Written: 2020
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