TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

A Member of the Law Professor Blogs Network

Thursday, January 20, 2005

Hines Presents VATs and International Trade Today at UCLA

Jhines Ucla_1James R. Hines, Jr. (University of Michigan, Economics Department) presents Value-Added Taxes and International Trade: The Evidence today at UCLA as part of its Tax Policy and Public Finance Workshop series.  Here is the abstract:

This paper examines the effect of value-added taxes (VATs) on international trade. Destination-based VATs are commonly thought to encourage exports, since exports are exempt from tax while imports are taxed. Economic theory implies that exchange rate adjustment prevents destination-based VATs from affecting exports and imports, since exchange rate appreciation completely undoes the effects of introducing a VAT. Indeed, this proposition is so well accepted among economists that it has not been subjected to serious prior testing. Evidence from 136 countries in 2000 indicates instead that reliance on VATs is associated with fewer exports and imports. Countries using VATs have one-third fewer exports than do countries not using VATs, and 10% greater VAT revenue is associated with 2% fewer exports. A similar pattern appears in an unbalanced panel of 168 countries from 1950-2000, in which VAT use is associated with 12% fewer exports. These patterns persist with the inclusion of income and geographic controls, and while the effect of VATs on exports is stronger among low-income countries than it is among high-income countries, there is a significant negative effect of VATs on exports even among high-income countries. The behavior of American multinational firms in 1999 is consistent: 10% greater local VAT collections are associated with 5% fewer exports by local American-owned affiliates. Two features of VAT implementation may account for these effects: VATs tend to be imposed at higher rates on traded goods than on nontraded goods, and exporters often receive only incomplete VAT rebates.

The workshop is from 3:00 - 5:00 pm PST in Room 2448 at UCLA.

http://taxprof.typepad.com/taxprof_blog/2005/01/hines_presents_.html

Colloquia | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341c4eab53ef00d834b195cc53ef

Listed below are links to weblogs that reference Hines Presents VATs and International Trade Today at UCLA:

Comments