Template-type: ReDIF-Paper 1.0
Author-Name:Richard M. Bird
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Author-Workplace-Name:Director of the International Tax Program, Joseph L. Rotman        School of Management, University of Toronto
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Author-Name:Pierre-Pascal Gendron
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Title: VATs in Federal States: Experiences and Emerging Possibilities 
Abstract:The biggest tax story of the last third of the 20 th century was the value-added tax 
 (VAT). From its tentative beginnings in the reform of the French production tax in 
 the early 1950s, by August 2000 some form of VAT existed in at least 123 countries. 
 Few fiscal innovations have been adopted so widely and so quickly. Towards the close of 
 the century, another striking trend was the increasing decentralization of the public sector in 
 many countries around the world. In this process, increasing responsibility for delivering such 
 important and expensive public services as education and health has been devolved to 
 sub-national governments, often to regional governments such as states or provinces. 
 Such decentralization may make good sense in many respects, but experience suggests 
 that it is essential to devolve responsibility not only for expenditures but also for some 
 significant revenues if adequate fiscal accountability is to be maintained.The traditional 
 literature on tax assignment suggests that the best form of taxation for intermediate-level 
 governments is a sales tax. Some form or another of sales tax does in fact constitute the major 
 source of finance for intermediate governments in many countries. Indeed, in developing 
 countries in which income taxes do not play a major role, it is hard to see what other 
 major revenue sources such governments could utilize. The retail sales tax once favored 
 as a regional tax, and still in place in most U.S. states (and some Canadian provinces) 
 is now an aberrationfrom a worldwide perspective. The only good sales tax is now generally 
 considered to be a VAT.There appear to be at least three reasons why the question of sub-national
 consumption VATs needs to bereconsidered, particularly in federal countries with important 
 regional governments. First, there are few other major revenue options open to countries 
 in which, for whatever reason, substantial expenditure responsibilities have been shifted to 
 lower levels of government, if those governments are to behave in a fiscally responsible manner. 
 Second, sub-national VATs have now in fact been successfully operating in Canada for a decade 
 and have also existed, if to less general acclaim, in Brazil for over 30 years. 
 Finally, several novel proposals have recently been made to overcome certain problems that 
 some see with applying the system used in Canada to other countries in which tax administration 
 is less well developed. 
Keywords: VATs,Emerging Possibilities 
Length: 45 pages
Creation-Date: 2001-04-01
File-URL:http://icepp.gsu.edu/files/2015/03/ispwp0104.pdf
File-Format:Application/PDF
Handle: RePEc:ays:ispwps:paper0104