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Structural transformation and tax efficiency
Author(s) -
Cevik Serhan,
Gottschalk Jan,
Hutton Eric,
Jaramillo Laura,
Karnane Pooja,
Sow Mousse
Publication year - 2019
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/infi.12346
Subject(s) - economics , productivity , panel data , value added tax , monetary economics , revenue , international economics , value (mathematics) , tax revenue , macroeconomics , finance , econometrics , machine learning , computer science
Structural transformation has resulted in an increasing share of services in output and employment in advanced and developing countries across the world. We analyse the impact of this shift into services on countries' efficiency in collecting the value‐added tax (VAT). The analysis is based on two alternative measures of VAT productivity: (a) the VAT C‐efficiency, using a broad panel of 134 countries over the period 1970–2014 and (b) the VAT gap using a more granular, proprietary data set that draws on the results of the International Monetary Fund's (IMF's) Revenue Administration‐Gap Analysis Program covering 24 countries over the period 2004–2016. We find that a higher share of services in aggregate value‐added reduces the VAT efficiency, and that this adverse effect is mainly a result of a rise of nontradable services which in turn contributes to a narrowing of the VAT base.