Domestic Taxes and Export Composition: Evidence from VAT Adoption Worldwide

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 a ected by a VAT. Motivated by these considerations, this paper uses trade data for over 100 countries spanning 1962-2015 to evaluate the di erential e ect of the VAT across industries. I nd 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 e ect is particularly pronounced for low-income countries and essentially absent for high-income countries. JEL Classi cation: H87; H25; F10; F13; F14 ∗Department of Economics, Colgate University, 13 Oak Dr., Hamilton NY 13346 ([email protected]). I am very grateful to Bibek Adhikari, Dominick Bartleme, Alan Deardor , Jim Hines, Takao Kato, Andrei Levchenko, Joel Slemrod and Sebastian Sotelo for useful comments and suggestions on this work.