Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260793 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9663
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper employs a structural gravity model and novel value-added tax (VAT) regime data to investigate the impact of VAT rate changes on imports and domestic production of final goods. We demonstrate that the VAT is both non-neutral and discriminatory. A one percentage point VAT increase reduces aggregate imports and internal trade by 3.05% and implies a 5.4 to 7.9% reduction of foreign imports relative to internal trade. Based on these results we conduct a counterfactual equilibrium analysis and illustrate that VAT rate changes imply substantial welfare effects for an average country in the European Union.
Subjects: 
structural gravity
value-added taxation
neutrality
discrimination
JEL: 
F10
F14
H22
Document Type: 
Working Paper
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