Evaluating the Efficiency and Multifaceted Role of Value Added Tax in Economic Policy

Key Focus

The paper explores how the Value Added Tax (VAT) functions as:

• A revenue-raising tool with minimal economic distortions
• A mechanism for achieving non-revenue objectives, such as environmental and health goals

⚙️ Efficiency Highlights

• VAT is more efficient than alternatives like turnover taxes and tariffs, especially in avoiding the cascading effect of input taxation.
• It supports macroeconomic policy, particularly in counter-cyclical fiscal strategies.

Cautions

• While VAT is highly effective for consumption taxation, the authors warn against using it for industrial policy or other areas where it’s less suitable.

Publication Details

• Authors: Ruud de Mooij, Shafik Hebous, Michael Keen
• Series: IMF Working Paper No. 2025/165
• Date: August 22, 2025

Source: imf.org

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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