- Elgar original reference
Edited by Emilio Albi and Jorge Martinez-Vazquez
6 Value-added tax: onward and upward? Jorge Martinez-Vazquez and Richard M. Bird* 1 INTRODUCTION The most important tax development of the last half-century has undoubtedly been the rise to prominence of the value-added tax (VAT).1 This tax has taken center stage almost everywhere (with the significant exception of the United States) and has become a revenue mainstay for many countries. The success of the VAT reflects a variety of factors: its high revenue potential, its relative simplicity and logic from an administrative perspective, its impact on economic efficiency, trade, and growth, the ease with which its relatively mild consequences on income distribution and equity may be mitigated, and the fact that fewer and relatively less complex political economy issues than often arise with respect to other potential revenue-producing taxes seem to afflict its introduction and development. After taking place for decades almost out of sight of the academic world, more recently these properties of the VAT – and of course the dramatic expansion of its use in rich and poor countries alike over the years – have begun to attract considerable attention in the tax policy and economics literature.2 We do not attempt to cover all developments in this chapter. Our objective is considerably more modest. Following a brief review of the spread of VAT in the next section, the major new contribution of this chapter is the detailed analysis in Sections 3 and 4 of how well the VAT has actually performed from several perspectives. In the balance of the...
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