{
  "title": "The Value Added Tax and Growth: Design Matters",
  "publication": "IMF Working Papers, May 7, 2019",
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  "summary": "Does the design of a tax matter for growth? Assembling a novel dataset for 30 OECD countries over the 1970-2016 period, this paper examines whether the value added tax (VAT) may have different effects on long-run growth depending on whether it is raised through the standard rate or through C-efficie",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Research question: Does the design of a tax matter for growth?\n- Dataset: novel panel for 30 OECD countries over the 1970-2016 period.\n- Focus: whether the value added tax (VAT) affects long-run growth differently when raised through the standard rate versus through C-efficiency (a measure of the departure of the VAT from a perfectly enforced tax levied at a single rate on all consumption)."
    },
    {
      "heading": "Key findings",
      "content": "- For a given total tax revenue, a rise in the VAT, financed by a fall in income taxes, promotes growth only when the VAT is raised through C-efficiency.\n- For a given VAT revenue, a rise in C-efficiency, offset by a fall in the standard rate, also promotes growth.\n- Implication: in OECD countries broadening the VAT base through fewer reduced rates and exemptions is more conducive to higher long-run growth than a rise in the standard rate."
    },
    {
      "heading": "Analytical concepts and metrics",
      "content": "- C-efficiency: defined in the paper as the measure of the departure of the VAT from a perfectly enforced tax levied at a single rate on all consumption.\n- Comparative policy experiments considered:\n  - Increase VAT revenue while reducing income taxes (total tax revenue held constant).\n  - Increase C-efficiency while reducing the standard VAT rate (VAT revenue held constant)."
    },
    {
      "heading": "Policy implications",
      "content": "- Base broadening (reducing reduced rates and exemptions) that raises C-efficiency can be growth-promoting relative to increasing the standard VAT rate.\n- Revenue-neutral tax reforms that shift revenue from income taxes to a more efficient VAT base can support higher long-run growth when those reforms increase C-efficiency."
    },
    {
      "heading": "Keywords and subject areas",
      "content": "- Subject: Consumption taxes, Income and capital gains taxes, Revenue administration, Revenue performance assessment, Tax efficiency, Taxes, Value-added tax\n- Keywords: Base broadening, C-efficiency, Consumption taxes, Economic growth, Global, growth effect, Income and capital gains taxes, personal income, rate differentiation, real GDP, Standard rate, Tax efficiency, tax revenue, Value-added tax, VAT, VAT base, VAT component, VAT revenue, VAT share, WP\n\nSource: The Value Added Tax and Growth: Design Matters, Santiago Acosta Ormaechea and Atsuyoshi Morozumi, May 7, 2019 — IMF Working Papers 2019, 096.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2019/05/07/the-value-added-tax-and-growth-design-matters-46836"
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    "Authors: Santiago Acosta Ormaechea, Atsuyoshi Morozumi",
    "Published: May 7, 2019",
    "Series: IMF Working Papers",
    "Research question: Does the design of a tax matter for growth?",
    "Dataset: novel panel for 30 OECD countries over the 1970-2016 period.",
    "Focus: whether the value added tax (VAT) affects long-run growth differently when raised through the standard rate versus through C-efficiency (a measure of the departure of the VAT from a perfectly enforced tax levied at a single rate on all consumption).",
    "For a given total tax revenue, a rise in the VAT, financed by a fall in income taxes, promotes growth only when the VAT is raised through C-efficiency.",
    "For a given VAT revenue, a rise in C-efficiency, offset by a fall in the standard rate, also promotes growth.",
    "Implication: in OECD countries broadening the VAT base through fewer reduced rates and exemptions is more conducive to higher long-run growth than a rise in the standard rate.",
    "C-efficiency: defined in the paper as the measure of the departure of the VAT from a perfectly enforced tax levied at a single rate on all consumption.",
    "Comparative policy experiments considered:",
    "Base broadening (reducing reduced rates and exemptions) that raises C-efficiency can be growth-promoting relative to increasing the standard VAT rate.",
    "Revenue-neutral tax reforms that shift revenue from income taxes to a more efficient VAT base can support higher long-run growth when those reforms increase C-efficiency.",
    "Subject: Consumption taxes, Income and capital gains taxes, Revenue administration, Revenue performance assessment, Tax efficiency, Taxes, Value-added tax",
    "Keywords: Base broadening, C-efficiency, Consumption taxes, Economic growth, Global, growth effect, Income and capital gains taxes, personal income, rate differentiation, real GDP, Standard rate, Tax efficiency, tax revenue, Value-added tax, VAT, VAT base, VAT component, VAT revenue, VAT share, WP",
    "**Working Paper**"
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