Is the value added tax a useful macroeconomic stabilization instrument?
The value added tax (VAT) has been proposed as a macroeconomic stabilization instrument. This paper considers some practical implications of a variable VAT rate. It then develops a dynamic general equilibrium model to assess its usefulness as a stabilization instrument. A variable rate VAT would no longer be less distortionary than other taxes. It would distort between current and future consumption, i.e. savings and investment decisions, and hence raise the economic costs of taxation....[Show more]
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