Effective Tax Rates of VAT, Efficiency Loss and Simplifying the Structure of Tax Rates: Theory and Simulation
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| Title | Effective Tax Rates of VAT, Efficiency Loss and Simplifying the Structure of Tax Rates: Theory and Simulation
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| Author | Shen Yuping , Chen Zhuoheng and Chen Fangmin |
| Organization | School of Public Finance and Taxation, Zhejiang University of Finance and Economics;Taxation, Graduate School of Chinese Academy Social Sciences |
| Email | syp830new@163.com；chenzh17@foxmail.com；cfm.chen@foxmail.com |
| Key Words | After Entering the Era of "Replacing Business Tax with Value-added Tax(VAT)"; Effective Tax Rate; Efficiency Loss; Simplifying the Structure of Tax Rates; Input-output Table |
| Abstract | The differential tax rates of VAT will change the relative prices of products and factors of production, distort the behavior of enterprises and consumers, cause the differences of effective tax rates between enterprises and industries, and then lead to the efficiency loss of resource allocation. This paper tries to establish a unified framework, which combined with value-added tax rate structure and the tax shifting after entering the era of "replacing business tax with value-added tax(VAT)", estimate the effective tax rates and their differences among industries, and study the efficiency loss of resource allocation caused by the differential tax rates of VAT. Further, using the theory model and the input-output table of 42 sectors to calculate: (1) The effective tax rates of the product sectors are quite different and there are significant differences in the effective tax rates for the product sectors with different grades after entering the era of "replacing business tax with value-added tax(VAT)"; (2) The mechanism of tax shifting between the industry plays a certain role on the differences of actual effective tax rates and resource allocation distortions and (3) the total factor productivity loss of the differences of VAT effective tax rates caused by the inter industry up to 0.534%. From the view of reducing efficiency loss of resource allocation, simplifying the structure of value-added tax rates is an important goal to achieve VAT neutral. In the short term, it should be designed a combination of tax rates as "a standard rate + a reduced rate". In the long term, it is necessary and feasible to establish a uniformed value-added tax rate of about 12%. |
| Serial Number | WP1372 |
| Time | 2019-05-21 |
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