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Domestic Taxes and Export Composition: Evidence from VAT Adoption Worldwide

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Abstract

In principle, a VAT should be neutral with regards to both the level and composition of exports. In practice, this may not be the case because exporters in many countries receive incomplete VAT refunds. When VAT refunds are incomplete, the exports of industries that rely heavily on intermediate goods are especially likely to be negatively affected by a VAT. Motivated by these considerations, this paper uses trade data for over 100 countries spanning 1962-2015 to evaluate the differential effect of the VAT across industries. I find that an industry with a 10% point higher intermediate goods share of output sees a decline in exports of over 8% relative to an industry with a lower share. This effect is particularly pronounced for low-income countries and essentially absent for high-income countries.

Suggested Citation

  • Sharma, Rishi, 2017. "Domestic Taxes and Export Composition: Evidence from VAT Adoption Worldwide," Working Papers 2017-4, Department of Economics, Colgate University, revised 02 Jul 2017.
    • Handle: RePEc:cgt:wpaper:2017-4
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    File URL: http://commons.colgate.edu/cgi/viewcontent.cgi?article=1054&context=econ_facschol
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    References listed on IDEAS

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    More about this item

    Keywords

    value-added tax; exports; export composition;
    All these keywords.

    JEL classification:

    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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