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Calculating the Optimal Small Business Exemption Threshold for a U.S. Vat

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  • Edith Brashares
  • Matthew Knittel
  • Gerald Silverstein
  • Alexander Yuskavage

Abstract

Most countries with a VAT have a tax exemption for small businesses that have taxable sales below a certain threshold. The exemption reduces both compliance costs for small businesses and administrative costs for the government. We use a static analysis of the U.S. economy to determine the optimal level of taxable sales for this threshold and analyze the potential behavioral response by businesses. For a 10 percent VAT rate, we fnd that the optimal level for the threshold in the United States is $200,000, and that behavioral responses may be signifcant close to the threshold.

Suggested Citation

  • Edith Brashares & Matthew Knittel & Gerald Silverstein & Alexander Yuskavage, 2014. "Calculating the Optimal Small Business Exemption Threshold for a U.S. Vat," National Tax Journal, National Tax Association;National Tax Journal, vol. 67(2), pages 283-320, June.
    • Handle: RePEc:ntj:journl:v:67:y:2014:i:2:p:283-320
    DOI: 10.17310/ntj.2014.2.01
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    References listed on IDEAS

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    Cited by:

    1. Gale, William G., 2020. "Raising Revenue with a Progressive Value-Added Tax," MPRA Paper 99197, University Library of Munich, Germany.
    2. Asatryan, Zareh & Peichl, Andreas, 2016. "Responses of firms to tax, administrative and accounting rules: Evidence from Armenia," ZEW Discussion Papers 16-065, ZEW - Leibniz Centre for European Economic Research.
    3. Zhao, Zhiqi, 2022. "The optimal sales threshold separating taxpayers by size in China," Economic Modelling, Elsevier, vol. 117(C).

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