Structural Transformation and Tax Efficiency

By Serhan Cevik, Jan Gottschalk, Eric Hutton, Laura Jaramillo, Pooja Karnane, Moussé Sow

February 15, 2019

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Serhan Cevik, Jan Gottschalk, Eric Hutton, Laura Jaramillo, Pooja Karnane, and Moussé Sow. Structural Transformation and Tax Efficiency, (USA: International Monetary Fund, 2019) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Structural transformation has resulted in an increasing share of services in aggregate value-added in advanced and developing countries across the world. We analyze the impact of this shift into services on countries’ efficiency in collecting the value-added tax (VAT). The analysis is based on two alternative measures of VAT efficiency: (1) the VAT C-efficiency, using a broad panel of 134 countries over the period 1970-2014; and (2) the VAT gap using a more granular, proprietary dataset that draws on the results of IMF’s Revenue Administraion-Gap Analysis Program covering 24 countries over the period 2004-2016. We find that a higher share of services in aggregate value-added reduces the VAT efficiency, and that this adverse effect is mainly a result of a rise of non-tradable services, which in turn contributes to a narrowing of the VAT base.

Subject: Revenue administration, Structural transformation, Tax efficiency, Tax gap, Value-added tax

Keywords: Null hypothesis, Real GDP, VAT C-efficiency, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/030
Stock No:

WPIEA2019030
ISBN:

9781484399811
ISSN:

1018-5941

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