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Effects of past and new VAT reforms in Finland

Author

Listed:
  • Jouko Kinnunen
  • Timo Rauhanen
  • Juha Honkatukia

Abstract

We study the effects of recent VAT reforms in Finland. Our counterfactual scenarios try to find, whether other reforms would enhance economic efficiency without compromising equity. We use a recursive dynamic applied GE model (VATTAGE, coded in GEMPACK) to study the macro, industrial and distributional effects of VAT reforms. We discuss different ways of modeling labor market issues We show that counterfactual reforms abolishing different VAT reforms in favor of one, general VAT rate fares better than the current differential VAT rate system. However, we show that it is not always the case that decreasing income taxation boosts growth when VAT rate is rased simultaneously in a revenue-neutral manner.

Suggested Citation

  • Jouko Kinnunen & Timo Rauhanen & Juha Honkatukia, 2011. "Effects of past and new VAT reforms in Finland," EcoMod2011 3412, EcoMod.
    • Handle: RePEc:ekd:002625:3412
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    References listed on IDEAS

    as
    1. Honkatukia, Juha, 2009. "VATTAGE - A dynamic, applied general equilibrium model of the Finnish economy," Research Reports 150, VATT Institute for Economic Research.
    2. Honkatukia, Juha & Marttila, Kimmo & Kinnunen, Jouko, 2009. "Distributional effects of Finland's climate policy package - Calculations with the new income distribution module of the VATTAGE model," Working Papers 11, VATT Institute for Economic Research.
    3. Alho, Kari, 2002. "The Equilibrium Rate of Unemployment and Policies to Lower It: The Case of Finland," Discussion Papers 839, The Research Institute of the Finnish Economy.
    4. Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup, 2006. "The marginal cost of public funds: Hours of work versus labor force participation," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1955-1973, November.
    5. Kosonen, Tuomas, 2010. "What was actually cut in the barbers' VAT cut?," Working Papers 18, VATT Institute for Economic Research.
    6. Clément Carbonnier, 2005. "Is Tax Shifting Asymmetric? Evidence from French VAT reforms, 1995-2000," Working Papers halshs-00590719, HAL.
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    8. K.Mc Morrow & W. Roeger, 2000. "Time-varying Nairu/Nawru estimates for the EU Member States," European Economy - Economic Papers 2008 - 2015 145, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    9. Charles L. Ballard & John Karl Scholz & John B. Shoven, 1987. "The Value-Added Tax: A General Equilibrium Look at Its Efficiency and Incidence," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 445-480, National Bureau of Economic Research, Inc.
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