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Can we curb tax evasion with VAT? A study on the relation between the value added tax and the size of the informal sector in Africa

Andersson, Henrik LU (2012) NEKN01 20121
Department of Economics
Abstract
This essay provides an analysis of the relation between the value added tax (VAT) and the size of the informal sector in Africa. The proposed hypothesis is that due to incentive mechanisms provided by VAT, tax evasion, and hence the size of the informal sector, should decrease when VAT replaces other standard consumption taxes, primarily the retail sales tax (RST) and the turnover tax (TOT).

The effect is estimated using a new panel-data set from 30 African states between 1996-2008. VAT is operationalized with a set of dummy variables that are assigned two values: either a country has a VAT, or it does not. The outcome from the estimations does not provide reliable results to support the hypothesis, nor is it possible to rule out the... (More)
This essay provides an analysis of the relation between the value added tax (VAT) and the size of the informal sector in Africa. The proposed hypothesis is that due to incentive mechanisms provided by VAT, tax evasion, and hence the size of the informal sector, should decrease when VAT replaces other standard consumption taxes, primarily the retail sales tax (RST) and the turnover tax (TOT).

The effect is estimated using a new panel-data set from 30 African states between 1996-2008. VAT is operationalized with a set of dummy variables that are assigned two values: either a country has a VAT, or it does not. The outcome from the estimations does not provide reliable results to support the hypothesis, nor is it possible to rule out the existense of a relationship. Since this essay is the first of its kind, more research is needed before any robust conclusions can be made regarding a causal relation between VAT and the size of the informal sector. (Less)
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author
Andersson, Henrik LU
supervisor
organization
course
NEKN01 20121
year
type
H1 - Master's Degree (One Year)
subject
keywords
value added tax, panel data, tax evasion, informal sector, Africa
language
English
id
3053079
date added to LUP
2012-09-27 11:26:01
date last changed
2012-09-27 11:26:01
@misc{3053079,
  abstract     = {This essay provides an analysis of the relation between the value added tax (VAT) and the size of the informal sector in Africa. The proposed hypothesis is that due to incentive mechanisms provided by VAT, tax evasion, and hence the size of the informal sector, should decrease when VAT replaces other standard consumption taxes, primarily the retail sales tax (RST) and the turnover tax (TOT). 

The effect is estimated using a new panel-data set from 30 African states between 1996-2008. VAT is operationalized with a set of dummy variables that are assigned two values: either a country has a VAT, or it does not. The outcome from the estimations does not provide reliable results to support the hypothesis, nor is it possible to rule out the existense of a relationship. Since this essay is the first of its kind, more research is needed before any robust conclusions can be made regarding a causal relation between VAT and the size of the informal sector.},
  author       = {Andersson, Henrik},
  keyword      = {value added tax,panel data,tax evasion,informal sector,Africa},
  language     = {eng},
  note         = {Student Paper},
  title        = {Can we curb tax evasion with VAT? A study on the relation between the value added tax and the size of the informal sector in Africa},
  year         = {2012},
}