QUASI-EXPERIMENTAL ANALYSIS ON THE EFFECTS OF ADOPTION OF A VALUE ADDED TAX

Value added taxes (VATs) have become an important source of government funding in past decades, but little empirical work has been carried out on their macroeconomic impacts. As the decision to implement a VAT is endogenous, regression methods analyzing the impact of the policy choice will yield biased estimates. To solve this problem, I first model the VAT adoption decision for 192 countries using survival analysis. I then match adopters to non-adopters using propensity score matching. I find that VAT adoption is associated with an increase in growth and investment as well as lower inflation and government spending as a share of GDP.