The Value-Added Tax: Key to Deficit Reduction?

By Charles E. McLure Jr.; Mark A. Bloomfield | Go to book overview

4
Economic Effects

The economic effects of introducing a value-added tax are, for the most part, not very interesting. True, imposition of a VAT would probably cause a one-time increase in prices, and the tax would be regressive unless explicit steps were taken to reduce its regressivity. But the tax would have relatively little effect on the allocation of economic resources or on the competitiveness of U.S. industry in world markets, except to the extent that it reduced the deficit and caused the dollar to weaken. That the economic effects of the VAT are rather bland—we might call it a vanilla tax—is one of its chief advantages. After all, the primary purpose of taxation is (or at least should be) to raise revenue, not to change economic behavior; certainly unintended changes in behavior induced by taxation are not likely to be desirable.

That the VAT does not have very interesting economic effects does not mean that the effects of substituting it for part of the present tax system would not be significant. If a relatively neutral VAT were substituted for part of the highly distortionary income tax system, the allocation of resources might be greatly improved. Moreover, the VAT can be expected to be more conducive to saving than the income tax. But, strictly speaking, most of any such effects should be attributed to reduction of the income tax, not to imposition of the VAT. Analogous statements can be made about using the relatively neutral VAT, rather than the income tax, to raise additional revenue.

In this chapter I examine the economic effects of introducing a VAT. For the most part I focus on the likely effects of the VAT, since it is novel and relatively unknown in the United States.But in several instances—most notably in the discussion of international aspects—I explicitly discuss the consequences of substituting the VAT for part of the existing corporate income tax.

Purists might argue that the entire discussion should be cast in terms of substituting the VAT for other taxes, even if the VAT is being

-28-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this book

This book has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this book

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited page

Bookmark this page
The Value-Added Tax: Key to Deficit Reduction?
Table of contents

Table of contents

  • The Value-Added Tax - Key to Deficit Reduction? *
  • Contents *
  • Foreword xi
  • Summary 1
  • 1: Introduction 3
  • 2: The Need for a Value-Added Tax 10
  • 3: The Nature and Base of the Value-Added Tax 15
  • 4: Economic Effects 28
  • 5: Alternative Revenue Sources 60
  • 6: Issues in the Design of a Value-Added Tax 71
  • 7: Alternative Forms of General Sales Tax 103
  • 8: Problem Industries and Activities 115
  • 9: Intergovernmental Issues 152
  • 10: Conclusions 160
  • Commentary Mark A. Bloomfield 165
  • Index 181
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen
/ 184

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.