IMF Working Papers

Efficiency Aspects of the Value Added Tax

By Ruud de Mooij, Shafik Hebous, Michael Keen

August 22, 2025

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Format: Chicago

Ruud de Mooij, Shafik Hebous, and Michael Keen. "Efficiency Aspects of the Value Added Tax", IMF Working Papers 2025, 165 (2025), accessed August 29, 2025, https://doi.org/10.5089/9798229016124.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper examines the efficiency of the Value Added Tax (VAT), focusing on its role as a revenue-raising tool and its use to achieve non-revenue objectives. The analysis highlights the VAT's potential ability to generate revenue with minimal distortions, emphasizing its advantages over alternative taxes, such as turnover taxes and tariffs, particularly in minimizing the cascading effects of input taxation. The paper also explores the VAT as a macroeconomic policy tool, especially in counter-cyclical fiscal policy, and its potential to address environmental and health objectives. It concludes that a well-designed and implemented VAT is a highly efficient revenue-raising tool, surpassing other forms of consumption taxation, but cautions against its misuse in industrial policy and other contexts for which it is ill-suited.

Subject: Consumption, Consumption taxes, National accounts, Revenue administration, Sales tax, Taxes, Value-added tax

Keywords: Charges, Consumption, Consumption taxes, Efficiency, Sales tax, Value Added Tax, Value-added tax, Welfare

Publication Details

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