Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/71346
Authors: 
Davies, Ronald B.
Paz, Lourenço
Year of Publication: 
2010
Series/Report no.: 
Working Paper Series, UCD Centre for Economic Research 10/08
Abstract: 
The debate over the use of tariffs or value added taxes in developing countries has focused on the difficulty of collecting VAT from the informal sector of the economy. This paper contributes by considering this issue with heterogeneous firms and endogenous entry. This yields two new results. First, a cut in the tariff in and of itself can reduce the size of the informal sector. Second, the imposition of a VAT need not increase the number of informal firms. In fact, for many parameterizations of the model, higher VAT reduces informality. Despite this, whether a revenue neutral shift from tariffs to VAT increases or decreases welfare depends on the parametrization. Therefore while this move may be welfare improving in some cases, it is not a one-size fits all policy.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
191.09 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.