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But it is not without controversy. Advocates say it raises government revenues without punishing success or wealth, as income taxes do; it is also simpler and more standardized than a traditional sales tax, and there are fewer compliance issues.
Critics charge that a VAT is essentially a regressive tax that places an increased economic strain on lower-income taxpayers, and also adds bureaucratic burdens for businesses. Value-added taxation is based on a taxpayer 's consumption rather than his income. In contrast to a progressive income tax, which levies greater taxes on higher-level earners, VAT applies equally to every purchase.
The tax is assessed and collected at each stage, in contrast to sales tax that is only assessed and paid by the consumer at the very end of the supply chain.
Say, for example, Dulce is an expensive candy manufactured and sold in the country of Alexia. However, the manufacturer renders only 30 cents to Alexia, which is the total VAT at this point, minus the prior VAT charged by the raw material supplier.
Sales Tax VATs and sales taxes can raise the same amount of revenue; the difference lies in at what point the money is paid — and by whom. Again, assume a VAT of 10 percent.
A farmer sells wheat to a baker for 30 cents. The baker pays 33 cents; the extra 3 cents represents the VAT, which the farmer sends to the government. The baker uses the wheat to make bread and sells a loaf to a local supermarket for 70 cents.
The supermarket pays 77 cents, including a 7 cent VAT. The baker sends 4 cents to the government; the other 3 cents were paid by the farmer. The VAT differs in that it is paid at different stops along the supply chain; the farmer pays 3 cents, the baker 4 cents and the supermarket 3 cents.
However, a VAT offers advantages over a national sales tax. It is much easier to track. The exact tax levied at each step of production is known; with a sales tax, the entire amount is rendered after the sale, making it difficult to allocate to specific production stages.
Additionally, because the VAT only taxes each value addition and not the sale of a product itself, assurance is provided that the same product is not double-taxed.
The United States remains the only notable exception. Most industrial countries with a VAT adopted their systems in the s. Results have been mixed, but there is certainly no tendency among VAT countries to have small budget deficits or low government debt.
According to one International Monetary Fund study, any state that switches to VAT initially feels the negative impact of reduced tax revenues despite its greater revenue potential down the road.
VAT has earned a negative connotation in some parts of the world where it has been introduced, even hurting its proponents politically. In the Philippines, for example, Senator Rafael Recto, the chief proponent of VAT in the s, was voted out of office by the electorate when he ran for re-election.
But in the years that followed its implementation, the population eventually accepted the tax. Recto ended up finding his way back to the Senate, where he became the proponent an expanded VAT.
VAT in the U. There's been much debate in the U. Advocates claim it would increase government revenue, help fund essential social services and reduce the federal deficit.
Of course, these figures don't account for all of the outside impacts of a VAT system. A VAT would change the structure of production in the United States; not all firms will be equally able to absorb the hike in input costs.
A value-added tax is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. 5 the economic importance of agriculture for sustainable development and poverty reduction: findings from a case study of ghana1 executive summary. Preliminary versions of economic research. Did Consumers Want Less Debt? Consumer Credit Demand Versus Supply in the Wake of the Financial Crisis.
It is unknown if the additional revenue would be used as an excuse to borrow more money — historically proven to be the case in Europe — or reduce taxes in other areas potentially making the VAT budget-neutral.A value-added tax is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale.
FINANCIAL RATIO ANALYSIS.
Financial ratio analysis involves the calculation and comparison of ratios which are derived from the information given in the company's financial statements. Preliminary versions of economic research. Did Consumers Want Less Debt?
Consumer Credit Demand Versus Supply in the Wake of the Financial Crisis. 5 the economic importance of agriculture for sustainable development and poverty reduction: findings from a case study of ghana1 executive summary.
“Walmart and Social Capital” [PDF]. Stephan J.
Goetz and Anil Rupasingha, American Journal of Agricultural Economics, Dec. The presence of a Walmart store reduces a community’s level of social capital, this study found.
Introduction. In this section, we review the studies that have previously estimated the impact of Brexit on the United Kingdom economy. Leaving the European Union is a .