Value-Added Taxes, Chain Effects, and Informality
- (pp. 195-221)
Abstract
We present an equilibrium model of tax avoidance and test its implications using a survey of firms in Brazil. In the model, the credit method used to collect value-added tax (VAT) creates informality chains-clients or suppliers of informal firms are more likely to be informal. An increase in enforcement in a production stage increases formality downstream and upstream. Various empirical measures of formality of suppliers and buyers, and of enforcement downstream and upstream, are positively correlated with formality. When the VAT is applied in a single stage of production at a rate estimated by the authorities, these chain effects disappear. (JEL H25, H26, L14, L21, O14, O17)Citation
de Paula, Áureo, and Jose A. Scheinkman. 2010. "Value-Added Taxes, Chain Effects, and Informality." American Economic Journal: Macroeconomics, 2 (4): 195-221. DOI: 10.1257/mac.2.4.195Additional Materials
JEL Classification
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H26 Tax Evasion
- L14 Transactional Relationships; Contracts and Reputation; Networks
- L21 Business Objectives of the Firm
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
- O17 Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
There are no comments for this article.
Login to Comment