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The Effect of the VAT Rate Change on Aggregate Consumption and Economic Growth

Bumpei Miki

Title:
The Effect of the VAT Rate Change on Aggregate Consumption and Economic Growth
Author(s):
Miki, Bumpei
Date:
Type:
Working papers
Department:
Center on Japanese Economy and Business
Permanent URL:
Series:
Center on Japanese Economy and Business Working Papers
Part Number:
297
Publisher:
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Publisher Location:
New York
Abstract:
The purpose of this paper is to empirically determine the effect of a change in a country's Value Added Tax (VAT) rate on its aggregate consumption and its economic growth. As for the effect on aggregate consumption, this paper removes the income effect and discusses only the substitution effect. Using panel data models on a sample covering up to 14 developed countries, including Japan, and quarter periods from the second quarter in 1980 (1980 Q2) to the third quarter in 2010 (2010 Q3) and picking up 53 cases of the change of the VAT rate, this paper shows empirically that aggregate consumption and economic growth display three kinds of trends when the VAT rate is changed. The first trend is that aggregate consumption and economic growth increases [or decreases] just before the rise [or reduction] of the VAT rate. The second trend is that they decrease [or increase] relatively dramatically as soon as the rise [or reduction] is implemented. The third trend is that after the dramatic decrease [or increase] they increase [or decrease] gradually.
Subject(s):
Economics
Item views:
1605
Metadata:
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