Abstract Despite the numerous value-added tax (VAT) proposals considered by Administrative and Congressional policy makers, no prior empirically-based comparative study has been made of the cash-flow effects of a broad range of VATs on individual companies. Furthermore, economists and accountants have not analyzed the effects that financing those cash flows may have on neutrality. This study develops a VAT cost-of-financing (COF) model for evaluating VAT proposals from three interrelated neutrality perspectives. The analysis, which uses 1977-82 financial data, reveals that VAT forms can have markedly different COFs, can vary in the equality of their distribution of COF among companies, and can provide differential incentives for companies to after their production functions. Some forms give companies financing benefits, but no one VAT form is found to be neutral from all perspectives. Implications for tax policy and future research are discussed.
Robert P. Crum (Fri,) studied this question.