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A Fresh Look at the VAT

January 1, 2004

The purpose of this paper is to identify and examine some of the key VAT policy issues that have arisen in the implementation of the tax. Specifically, the paper examines four issues as examples of the specific inefficiencies that arise in actual practice with VATs. The first section examines the effect of registration thresholds, normally allowed to lessen administrative burdens, as an example of structural inefficiencies. The second section examines the tariff effects arising from administration of the VAT at border. The third section considers application of the VAT on financial services as an example of exemptions from the tax. Finally, the problem of distributing the revenues of a destination VAT levied at the subnational level is discussed.Working Paper Number 04-38.

Sales Taxation in a Global Economy

December 1, 2003

This paper examines the hard-to-tax problem as it relates to the operation of the retail sales tax in general and particularly in the context of an increasingly global economy, with freer trade and factor mobility and heightened horizontal tax and market competition. The perspective of globalization taken here is drawn largely from that of competition and openness across American states; international globalization simply represents an extension of the current problems associated with attempts to administer a destination-based indirect tax in an open economy that falls on a subset of both household consumption and business input purchases. A primary conclusion is that avoidance and evasion, coupled with legislative initiatives, will cause a continued narrowing of the tax base and a further deterioration in revenue productivity.Working Paper Number 03-20.