The Effect of Value-Added Tax Collection Alternatives on Revenue Yield.

A value-added tax (VAT) has attracted increasing attention from tax policy makers and tax analysts in their search for revenue sources. Using macro data, we estimate the revenue that each of 24 VAT forms would have generated from the nonfinancial corporate sector during 1971-85. Analyses of these estimates: (1) demonstrate that revenue generation substantially depends upon VAT form, (2) reconcile with the micro results of Crum [1985], (3) suggest that the invoice (accrual) method may speed recession recoveries by reducing cash outflows for companies immediately before economic troughs, (4) Indicate that a VAT provides a lower rate and more stable revenue source than the corporate income tax (CIT), and (5) demonstrate that the tax redistiribution from a VAT-for-CIT substitution depends on which VAT form is adopted. Implications for tax policy are discussed.