Tax Avoidance and Value-Added vs. Income Taxation in an Open Economy / Roger H. Gordon, Soren Bo Nielsen.

Format:

Book

Author/Creator:

Gordon, Roger H.

Contributor:

National Bureau of Economic Research.

Nielsen, Soren Bo.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5527.

NBER working paper series no. w5527

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Summary:

Ignoring tax avoidance possibilities, a value-added tax and a cash-flow income tax have identical behavioral and distributional consequences. Yet the available means of tax avoidance under each are very different. Under a VAT, avoidance occurs through cross-border shopping, whereas under an income tax it occurs through shifting taxable income abroad. Given avoidance, we show that a country would make use of both taxes in order to minimize the efficiency costs of avoidance activity, relying relatively more on that tax that is harder to avoid. We then make use of aggregate Danish tax and accounting data from 1992 to measure the amount of avoidance that occurred under the two taxes. While the estimates of avoidance activity are small, the figures imply that Denmark could reduce the real costs of avoidance activity by putting more weight on income rather than value- added taxes.

Notes:

Print version record

April 1996.