This research effort examines the relationship between the Value-added tax and the distribution of social welfare. The main hypothesis of this effort argues that implementation of and reliance on a Value-added tax will lead to more equitable distributions of social welfare. Relevant theories of public finance and literature reviews of peer-edited articles are provided as support for the empirical work performed to test this hypothesis. Using a panel of 34 OECD member states over the period between 1995 and 2010, fixed-effects and random-effects regression models are run. The results of the fixed-effects model do not conform to the hypothesis while the results of the random-effects model do. While the results conflict, the findings do suggest that the propensity to spend government revenue on social policy areas is crucial for a more equitable distribution of social welfare. It is therefore implied that the Value-added tax is an effective tool to raise the necessary funds for this purpose but such a tool will lead to beneficial welfare effects only if its revenues are spent in a socially optimal way.
Tonian, Eric G., "The Value-Added Tax as an Optimal Solution: The Effect of VAT Use and Structure on the Distribution of Social Welfare" (2015). Senior Independent Study Theses. Paper 6831.
Econometrics | Finance | Income Distribution
Bachelor of Arts
Senior Independent Study Thesis
© Copyright 2015 Eric G. Tonian