Skip to main content Skip to navigation

Efficiency and welfare costs of VAT: Evidence from VAT notches

Efficiency and welfare costs of VAT: Evidence from VAT notches

Li Liu, Ben Lockwood, The CAGE Background Briefing Series No. 62, July 2016
background briefing series, policy briefing, behavioural economics and wellbeing

Li Liu, Ben Lockwood, The CAGE Background Briefing Series No. 62, July 2016

Most countries have a threshold below which businesses do not need to register for value added tax (VAT). This column looks at the costs and efficiency of VAT by analysing behavioural responses of firms to the registration threshold. Voluntary registration appears more likely when the cost of inputs is high or when the proportion of business-to-consumer sales is low. There is bunching around the threshold, and this is more likely when the cost of inputs relative to sales is low or the proportion of business-to-consumer sales is high.

Behavioural Economics and Wellbeing