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Do Value-Added Taxes Affect International Trade Flows? Evidence from 30 Years of Tax Reforms

Youssef Benzarti, Alisa Tazhitdinova

NBER Working Paper No. 26195
Issued in August 2019
NBER Program(s):International Trade and Investment Program, Public Economics Program

This paper uses all Value Added Tax (VAT) changes across all EU Member States from 1988 to 2016 to estimate the effect of VATs on trade flows. We find small elasticities of trade flows with respect to VATs, in spite of some of the VAT changes being substantial. We estimate substantially smaller responses of trade flows to VATs compared to the responses of trade flows to tariffs estimated in the trade literature. This finding holds across different time periods, countries and types of reforms. Our results imply that VATs are unlikely to distort trade flows.

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Document Object Identifier (DOI): 10.3386/w26195

 
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