We examine the role of market characteristics and timing in explaining observed heterogeneity in VAT pass-through. We first extend existing theory to characterize the roles of imperfect competition and product differentiation, then investigate these relationships empirically using a panel of 14 Eurozone countries between 1999 and 2013. We find important roles for product market regulation and product quality, and little impact of advance announcement of reforms. Our findings have important implications for policy-makers considering VAT rate adjustments, by illuminating which of the consumers or the producers would experience the brunt of a reform across different settings.
This paper examines the macroeconomic effects of tax changes during fiscal consolidations. We
build a new narrative dataset of tax changes during fiscal consolidation years, containing detailed
information on the expected revenue impact, motivation, and announcement and
implementation dates of nearly 2,500 tax measures across 10 OECD countries. We analyze the
macroeconomic impact of tax changes, distinguishing between tax rate and tax base changes,
and further separating between changes in personal income, corporate income, and value added
tax. Our results suggest that base broadening during fiscal consolidations leads to smaller output
and employment declines compared to rate hikes, even when distinguishing between tax types.
Examines the role of the shadow, or underground, economy. Looks at ways of measuring it, the relationship between the shadow economy and the main stream economy, why it has been growing in size, and its effects on overall economic growth. How can states limit the size of the shadow economy, and does it matter that it exists?
Measuring the size of the underground economy is obviously a difficult task. This paper reviews the literature, as applied to Belgium and elsewhere, on the determinants of the gray economy. The methods that have been used to measure the size of the gray economy are also discussed. The estimates for Belgium are updated using the currency demand approach. The major theory of the gray economy focuses on taxes, which drive a wedge between net incomes and gross labor costs.