Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/67790
Authors: 
Boadway, Robin
Sato, Motohiro
Year of Publication: 
2008
Series/Report no.: 
Queen's Economics Department Working Paper 1168
Abstract: 
An optimal commodity tax approach is taken to compare trade taxes and VATs when some commodities are produced informally. Trade taxes apply to all imports and exports, including intermediate goods while the VAT applies only to sales by the formal sector and imports. The VAT can achieve production efficiency within the formal sector, but unlike the trade tax regime, it cannot indirectly tax pure profits. Making the size of the informal sector endogenous in each regime is potentially decisive. The ability of the government to change the size of the informal sector through costly enforcement may also tip the balance in favor of the VAT.
Subjects: 
informal sector
optimal taxation
value-added tax
trade taxes
JEL: 
H21
H26
O17
Document Type: 
Working Paper

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