The value-added tax and growth: design matters

Abstract Previous research has shown that changes in the composition of tax revenue affect long-run growth. However, little is yet known about whether way raised matters for This paper examines whether, context OECD countries, a revenue-neutral increase value-added (VAT), offset by fall income taxes, may have different effects on growth depending how VAT raised. We show rise promotes when it through C-efficiency , while does not standard rate applied to largest portion taxed consumption. measures departure from perfectly enforced levied at single all consumption, which advanced economies largely due because exemptions and reduced rates. Thus, our results suggest an C-efficiency, possibly reflecting broadening base fewer more uniform structure with rates, than rate.