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Does VAT reduce the instability of tax revenues?

Author

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  • Christian Hubert Ebeke

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

  • Hélène Ehrhart

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

Abstract
In this study, we examine whether or not the adoption of value-added tax (VAT) in developing countries is an effective way of stabilising tax revenues. Using a large panel of 103 developing countries observed over 1980-2008 and several alternative estimation methods in order to deal with the self-selection bias and the endogeneity issue inherent in VAT adoption, we found robust evidence that the presence of VAT leads to significantly lower tax revenue instability. On average, countries with VAT experience 40-50% less tax revenue instability than countries which do not have a VAT system. These effects decrease with the level of economic development and the openness of trade.

Suggested Citation

  • Christian Hubert Ebeke & Hélène Ehrhart, 2012. "Does VAT reduce the instability of tax revenues?," Working Papers halshs-00617272, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00617272
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00617272v2
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    References listed on IDEAS

    as
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    Cited by:

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    2. Blaise Gnimassoun & Isabelle Do Santos, 2021. "Robust structural determinants of public deficits in developing countries," Applied Economics, Taylor & Francis Journals, vol. 53(9), pages 1052-1076, February.
    3. Pelle Ahlerup & Thushyanthan Baskaran & Arne Bigsten, 2015. "Tax Innovations and Public Revenues in Sub-Saharan Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 51(6), pages 689-706, June.
    4. Erero Jean Luc, 2021. "Contribution of VAT to economic growth: A dynamic CGE analysis," Journal of Economics and Management, Sciendo, vol. 43(1), pages 22-51, January.
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    6. Harsha Konara Mudiyanselage & Shawn Xiaoguang Chen, 2022. "What impairs the ‘money machine’ of VAT in developing countries?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(5), pages 1128-1159, October.
    7. Grażyna Voss, 2017. "Certificate of Ethics in Accounting and Professional Independence of Accountants," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 3, ejes_v3_i.

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    More about this item

    Keywords

    Tax Instability; Value Added Tax; Macroeconomic Fluctuations;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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