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VAT Notches, Voluntary Registration, and Bunching: Theory and UK Evidence
Using administrative tax records for UK businesses, we document both bunching in annual turnover below the VAT registration threshold and persistent voluntary registration by almost half of the firms below the threshold. We develop a conceptual framework that can simultaneously explain these two apparently conflicting facts. The framework also predicts that higher intermediate input shares, lower product-market competition and a lower share of business to consumer (B2C) sales lead to voluntary registration. The predictions are exactly the opposite for bunching. We test the theory using linked VAT and corporation tax records from 2004-2014, finding empirical support for these predictions.
Small Firm Growth and the VAT Threshold Evidence for the UK
This paper studies the effect of the VAT threshold on firm growth in the UK, using exogenous variation over time in the threshold, combined with turnover bin fixed effects, for identification. We find robust evidence that annual growth in turnover slows by about 1 percentage point when firm turnover gets close to the threshold, with no evidence of higher growth when the threshold is passed. Growth in firm costs shows a similar pattern, indicating that the response to the threshold is likely to be a real response rather than an evasion response. Firms that habitually register even when their turnover is below the VAT threshold (voluntary registered firms) have growth that is unaffected by the threshold, whereas firms that select into the Flat-Rate Scheme have a less pronounced slowdown response than other firms. Similar patterns of turnover and cost growth around the threshold are also observed for non-incorporated businesses. Finally, simulation results clarify the relative contribution of ``crossers" (firms who eventually register for VAT) and ``non-crossers" (those who permanently stay below the threshold) in explaining our empirical findings.
Value Added Tax in the Extractive Industries
Lower capacity countries often struggle to administer the Value Added Tax (VAT) in the extractive industries, partly due to the large VAT refunds needs of this capital and export-intensive sector. Assuming that the first-best policy (apply the standard VAT to the extractive industry) is not possible in the medium-term, what should countries do? This paper systemically analyzes second-best VAT policy designs considering the impact of the VAT on three key stakeholders: the investor, domestic suppliers, and the tax administration. The analysis concludes that the generally preferred policy is to provide a VAT exemption for imports and either fully tax or exempt domestic supplies, although country characteristics (and, specifically the relative weighting of stakeholders) matter. Moreover, governments should make efforts to shorten refund delays and transition to a standard VAT over the longer-term.
Rebellion, Rascals, and Revenue
An engaging and enlightening account of taxation told through lively, dramatic, and sometimes ludicrous stories drawn from around the world and across the ages Governments have always struggled to tax in ways that are effective and tolerably fair. Sometimes they fail grotesquely, as when, in 1898, the British ignited a rebellion in Sierra Leone by imposing a tax on huts—and, in repressing it, ended up burning the very huts they intended to tax. Sometimes they succeed astonishingly, as when, in eighteenth-century Britain, a cut in the tax on tea massively increased revenue. In this entertaining book, two leading authorities on taxation, Michael Keen and Joel Slemrod, provide a fascinating a...
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