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International VAT Harmonization: Economic Effects

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  • Jacob A. Frenkel
  • Assaf Razin
  • Steve Symansky

Abstract

This paper highlights macroeconomic issues pertinent to the understanding of the international and domestic effects of international VAT harmonization. It outlines elements of the policies of VAT harmonization envisaged for Europe of 1992, and develops a basic tax model which is suitable for the analysis of the incentive effects of various tax policies and their welfare implications. The model emphasizes the effects of changes in the time profile of the various taxes on the intertemporal allocations of savings, investment, and labor. Dynamic simulations reveal that the macroeconomic and welfare implications of VAT harmonization depend critically on the tax system and on the degree of substitution governing temporal and intertemporal allocations. In this context we consider several forms of income (cash flow, labor income, and capital income taxes) as well as tax systems embodying various saving and investment incentives. The simulations also reveal the potential conflicts of interest, within each country and between countries, that can arise from VAT harmonization.

Suggested Citation

  • Jacob A. Frenkel & Assaf Razin & Steve Symansky, 1991. "International VAT Harmonization: Economic Effects," NBER Working Papers 3656, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3656
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    References listed on IDEAS

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    1. Jacob Frenkel & Assaf Razin & Steve Symansky, 1990. "International Spillovers of Taxation," NBER Chapters, in: Taxation in the Global Economy, pages 211-262, National Bureau of Economic Research, Inc.
    2. Bovenberg, A.L., 1989. "The effects of capital income taxation on international competitiveness and trade flows," Other publications TiSEM e64b6c96-399c-460f-9eff-7, Tilburg University, School of Economics and Management.
    3. Willem Buiter, 1987. "Fiscal Policy in Open, Interdependent Economies," Palgrave Macmillan Books, in: Assaf Razin & Efraim Sadka (ed.), Economic Policy in Theory and Practice, chapter 3, pages 101-144, Palgrave Macmillan.
    4. Frenkel, Jacob A & Razin, Assaf, 1989. "International Effects of Tax Reforms," Economic Journal, Royal Economic Society, vol. 99(395), pages 38-58, Supplemen.
    5. Frenkel, Jacob A & Razin, Assaf, 1987. "Fiscal Policies and the World Economy; An Intertemporal Approach (Cambridge, Mass.: MIT Press, 1987)," MPRA Paper 20438, University Library of Munich, Germany.
    6. Jacob Frenkel & Assaf Razin & Efraim Sadka, 1991. "International Taxation in an Integrated World," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061430, April.
    7. Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-594, June.
    8. Bovenberg, A Lans, 1989. "The Effects of Capital Income Taxation on International Competitiveness and Trade Flows," American Economic Review, American Economic Association, vol. 79(5), pages 1045-1064, December.
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    10. Mr. W. R. M. Perraudin & Mr. Thierry Pujol, 1990. "European Fiscal Harmonization and the French Economy," IMF Working Papers 1990/096, International Monetary Fund.
    11. Jacob A. Frenkel & Assaf Razin, 1988. "Budget Deficits under Alternative Tax Systems: International Effects," IMF Staff Papers, Palgrave Macmillan, vol. 35(2), pages 297-315, June.
    12. Assaf Razin & Efraim Sadka (ed.), 1987. "Economic Policy in Theory and Practice," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-18584-9, October.
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    Cited by:

    1. Enrique G. Mendoza, 2001. "The International Macroeconomics of Taxation and the Case Against European Tax Harmonization," NBER Working Papers 8217, National Bureau of Economic Research, Inc.
    2. Hans Fehr, 2000. "From Destination- to Origin-Based Consumption Taxation: A Dynamic CGE Analysis," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(1), pages 43-61, February.
    3. Janina Kotlinska & Marian Zukowski & Pawel Marzec & Jaroslaw Kuspit & Zdzislaw A. Blasiak, 2020. "Household Consumption and VAT Revenue in Poland," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 2), pages 580-605.

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