VAT Reform Research Articles

Is investment–cashflow sensitivity a good measure of financial constraints?

Since Fazzari et al. (1988), investment–cashflow sensitivity has been one of the most important indicators for testing and measuring the external financial constraints of corporations. This study analyzes the effect of changes in the relative cost of internal and external financing on investment decisions in response to tax changes. China’s 2004 VAT reform decreased companies’ effective tax rates, leading to an increase in operating cashflow. This, in turn, reduced the internal cost of financing and the value of the tax shield and increased the cost of debt financing. This study shows that in the case of the VAT reform, investment–cashflow sensitivity increased significantly, whereas cash holdings–cashflow sensitivity and borrowing-slack sensitivity did not significantly change. We conclude that investment–cashflow sensitivity is not an effective measure of financial constraints under information asymmetry, but cash–cashflow sensitivity and borrowing-slack sensitivity may be useful alternatives.

What Was Actually Cut in the Barbers’ VAT Cut?

The tax incidence of consumption taxes across various sectors of the economy is a key aspect when designing a tax structure. However, there are very few empirical findings on this subject. This paper studies the tax incidence of consumption taxes utilising a VAT reform targeted at labour-intensive services in Finland. The reform creates a natural experiment set-up, because the reduced VAT was targeted at hairdressers, whereas the normal tax treatment still applied to beauty salons. This experiment is exogenous to the economic conditions of hairdressers in Finland, since this group was selected in a European Commission Directive. I study the effects of the reform on prices and demand. The results suggest that barbers cut their prices only by half of what complete pass-through would have implied. Using the experiment as an instrument, I find little effect on demand. Thus, there does not seem to be any indication of a significant effect on labour demand.

The Legislative Issues and Its Prospects of VAT Reform in China

The Legislative Issues and Its Prospects of VAT Reform in China

Analyze the Impact of VAT Reform on Coal Sector

Analyze the Impact of VAT Reform on Coal Sector

Can targeted food taxes and subsidies improve the diet? Distributional effects among income groups

This paper analyses distributional effects of revenue-neutral tax reforms aimed at improving dietary quality and encouraging healthier grain consumption. Using data on household grain purchases, we analyse both the impact on dietary quality and the tax incidence among income groups of VAT reforms and excise duty reforms. The VAT reforms include subsidies of healthy products (products labelled with the Swedish National Food Administration’s healthy symbol) funded by increased VAT on ‘less healthy’ products. The excise duty reforms contain a subsidy of fibre content, funded by excise duties on either added sugar or saturated fat. Our results suggest that the VAT reforms have a similar impact on dietary quality across all income groups, with increases in fibre intake, but also unwanted increases in the intake of nutrients frequently overconsumed: fat, salt and sugar. The impact on dietary quality of the VAT reforms is therefore difficult to evaluate. With the exception of the lowest income group, the excise duty reforms seem to have a positive health effect across all other income groups, with increases in the intake of fibre and reductions in the intake of saturated fat, sugar and added sugar. For the lowest income group we find the highest increase in the intake of fibre, but generally an increase in the intake of the other nutrients, too. The excise duty reforms also result in a more energy-dense grain diet, with increases in the intake of calories for all income groups. Both the VAT reforms and the excise duty reforms appear to be progressive. The lowest income group pays less food taxes and generally faces a lower overall post-reform price level. The income group that increases its tax payments most is the one with the highest income. This is also the income group that faces the largest increase in the overall post-reform price level.

Social VAT: Good or Bad Idea? (La TVA Sociale: Bonne ou Mauvaise Idée?) (French)

The quantitative and dynamic consequence of a social VAT reform, i.e. a fiscal reform consisting in substituting VAT for social contributions, is assessed using two general equilibrium models. The first one is a Walrasian model with no other frictions than distortionary taxation of labor and capital incomes and consumption. The second one introduces in addition matching frictions in the labor market. Two alternative financing schemes are considered for the practical details of implementing the social VAT. In all cases, the fiscal reform turns out to generate a small, positive long-run effect on aggregate variables and yields a modest welfare gain. In the no-friction model, this welfare gain is substantially reduced when the reform is pre-announced six quarters prior to implementation. The effect of such a pre-announced reform are smaller when labor market frictions are taken into account.

Reform of Swiss VAT - the VAT Act from 2010 This article gives a concise overview of the background of the VAT reform and the upcoming changes. Due to the fact that not all information (implementing provisions and administrative notices) is available at this moment, the new legislation will be evaluated at a later stage.

Switzerland is about to implement the biggest reform in the field of VAT since the introduction of the tax in 1995. The new VAT Act 2009, which is envisaged to come into effect on 1 January 2010, is the first step in the direction of the (originally) intended "ideal" VAT system. This article gives a concise overview of the background of the VAT reform and the upcoming changes.

The VAT Reform and Its Financial Impacts

Since January 1st 2009, all regions and industries in China have implemented the VAT reform. Therefore, in this article, the author makes an analysis on the background of the VAT reform based on a review of the types of VAT and its reform practice. He also points out impact of the overall implementation of VAT on corporate finance.

Summary of General Discussion on “Supply-side Economics in the People's Republic of China's Regional Context: A Quantitative Investigation of Its VAT Reform”

Summary of General Discussion on “Supply-side Economics in the People's Republic of China's Regional Context: A Quantitative Investigation of Its VAT Reform”

Who pays sales taxes? Evidence from French VAT reforms, 1987–1999

The point of this paper is to provide visual evidence of tax shifting and to measure empirically the distribution of the sales tax burden between consumers and producers. For that purpose, two French reforms are studied. These reforms entail steep decreases of the VAT rate. September 1st 1987, the VAT rate on car sales went down from the luxury-rate of 33.33% to the full-rate of 18.6%. September 1st 1999, the VAT rate on housing repair services went down from the full-rate of 20.6% to the reduced-rate of 5.5%. The consumer share of the sales tax burden is 57% in the new car sales market and 77% in the housing repair services market.

Distributional Implications of the VAT Reform in the Philippines

This paper assesses the distributional impact of the recent VAT reform in the Philippines and evaluates alternative methods to mitigate the effects of the reform on poor households. The reform was progressive and relatively well targeted. To alleviate the impact of the reform on the poor, several mitigating measures were introduced. Although these measures reduced the adverse impact of the VAT reform for all households, a sizable amount of the benefit accrued to high-income households. Targeted transfer schemes have the potential to deliver a much higher percentage of benefits to the poor.

Distributional Implications of the Vat Reform in the Philippines

This paper assesses the distributional impact of the recent VAT reform in the Philippines and evaluates alternative methods to mitigate the effects of the reform on poor households. The reform was progressive and relatively well targeted. To alleviate the impact of the reform on the poor, several mitigating measures were introduced. Although these measures reduced the adverse impact of the VAT reform for all households, a sizable amount of the benefit accrued to high-income households. Targeted transfer schemes have the potential to deliver a much higher percentage of benefits to the poor.

Improving the mechanisms of global governance? the ideational impact of the World Bank on the national reform agenda in Mexico

Improving the mechanisms of global governance? the ideational impact of the World Bank on the national reform agenda in Mexico

Economic Effects of Vat Reform in Germany

In the tax policy debate, differentiation of value-added taxes is often justified by distributional concerns. Our quantitative analysis for Germany indicates that such concerns are misplaced. We find that the abolition of VAT differentiation has only negligible redistributive effects. Instead, reduced VAT are found to act as industry-specific subsidies. Whereas the overall welfare effects of pure VAT reforms are very small, a revenue-neutral introduction of a harmonised VAT combined with reductions in the marginal income tax rates or social security contributions turns out to produce substantial welfare gains for all households.

Measuring the welfare costs of EU accession

We analyze possible reforms to the Bulgarian VAT system, evaluating revenue‐neutral reallocations of goods to tax bands within the existing 2‐rate structure. We investigate the sensitivity of the results to behavioural response and imperfect tax recovery. We find only a weak case for the use of non‐uniform VAT rate structures for redistributional purposes. Selective VAT exemptions can produce approximate welfare gains equivalent to a general price fall of much less than 1 per cent for plausible specifications of social welfare.JEL classification: D31, J31, P24.

Europe 1990 An agenda for action

European technological and economic progress is being materially hampered by our slowness in implementing Article 2 of the Treaty of Rome. Dr. Dekker proposes a specific five year plan of action embracing trade facilitation, VAT reform standardisation and Government procurement especially in telecommunications. The plan was launched at the Centre for European Policy Studies in Brussels on 13 November 1984. Further detail is available from Philips Press Office, PO Box 523, 5600 AM Eindhoven The Netherlands. Telephone 040 757223.