Can VAT improve technical efficiency in China -based on the SFA model test

YanFeng Jiang
2014 Proceedings of the 3rd International Conference on Science and Social Research   unpublished
This paper empirically tests how the change of value added tax impacts on technical efficiency based on the SFA model. The results show, if the proportion of the value added tax is higher, it is not good for the technical efficiency. We suggest, in the design of the VAT system, we should pay more attention to its influence on technical efficiency. For example, implement value added tax subsidy for technology research and development (R&D). Literature Review Value added tax is only a tax on
more » ... only a tax on final consumption, so as long as the design is appropriate, VAT is a particularly efficient tax. Value added tax is in accordance with the neutral tax, can avoid the low efficiency of some other indirect tax. But, Value added tax has some potential disadvantages and is not conducive to efficiency. When the transaction chain once broken, value added tax will lead to the loss of efficiency. In addition, because tax system is not perfect, and the statutory tax rebate is too high, these means the value added tax will not help the export and trade (Desai-Hines, 2005[1]).Meanwhile, Value added tax will have a negative impact on informal sector of the economy (Piggott and Whalley, 2001[2]; Emran and Stiglitz, 2005[3]; Keen, 2008[4]). Therefore, based on the not clear performance of value added tax, whether value added tax is conducive to the improvement of the technical efficiency is only one empirical study (Keen and Lockwood, 2010)[5].
doi:10.2991/icssr-14.2014.141 fatcat:pgwzfjwpuzelpkhd53mm5na66y