Revenue and welfare effects of financial sector VAT exemption

Thiess Buettner () and Katharina Erbe
Authors registered in the RePEc Author Service: Thiess Büttner

International Tax and Public Finance, 2014, vol. 21, issue 6, 1028-1050

Abstract: This paper provides an analysis of revenue and welfare effects associated with a VAT exemption of financial services, which is common among OECD countries. We follow a general equilibrium approach that considers effects of repealing the VAT exemption not only on consumer demand and intermediate-input demand for financial services, but takes account also of the VAT distortion of labor supply. We derive formal expressions for revenue and welfare effects, which can be quantified with a minimum of information about behavioral effects. Using VAT statistics as well as national accounts, we provide quantitative estimates of the effects of repealing the VAT exemption in Germany. Our baseline estimate indicates that tax revenues would increase by some €1.7 billion or 1.3 % of VAT revenues (excluding import turnover tax). Provided these revenue gains are used to finance a reduction in the VAT rate or in other distortive labor taxes our results indicate a modest welfare gain of about €1 billion, or 0.04 % of GDP. Copyright Springer Science+Business Media New York 2014

Keywords: VAT; Financial services; Exemption; General equilibrium; Deadweight loss; Input-output analysis; H24; H25 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:21:y:2014:i:6:p:1028-1050

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DOI: 10.1007/s10797-013-9297-5

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