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

Author/Editor:

Li Liu ; Ben Lockwood ; Miguel Almunia ; Eddy H.F. Tam

Publication Date:

September 27, 2019

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

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.

Series:

Working Paper No. 19/205

Subject:

English

Publication Date:

September 27, 2019

ISBN/ISSN:

9781513513812/1018-5941

Stock No:

WPIEA2019205

Format:

Paper

Pages:

78

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