July 27th 2022

PA.124 | Global Diffusion of Fiscal Invention: Value-Added Tax in the Contemporary World

Parallel Sessions
14:00 - 17:30 - Recherche Sud - Room 0.033
Recent several worldwide social and political phenomena have revealed how significantly taxation—the state's capacity to raise financial resources to accomplish its policy goals—and public finance influence social, economic, and political system of a nation state. The age of austerity after the Great Recession from 2008 induced the global hardship of middle-class and the rise of populism and nationalism in the 2010s. In 2020, governments across the world have urgently carried out temporary economic and social programs, including temporary rate reductions or deferred payment options of the value-added tax (VAT), in order to cope with the turmoil given by the spread of the COVID–19. This choice has been expanding expenditures, budget deficits, and debt accumulation of governments all around the world. Without considering how to obtain taxpayer consent and to raise revenues, most countries may face with further difficulties to provide their citizens with fiscal policies that fund public services and social programs they usually demand. Then, fiscal states all around the world may further lose citizens' confidence in states, taxpayer consent, and extractive capacity, resulting in falling into another fiscal crises. Within less than half a century, the VAT has become one of most dominant revenue instruments of states across the world. In 1918, German businessman Wilhelm von Siemens proposed the VAT as a "refinement" or improvement to the German cascading turnover tax. In 1920 and 1921, the American economist Thomas S. Adams proposed an invoice-credit method VAT as an alternative to business income taxation. After the French Parliament legislated the VAT on April 10, 1954, the popularity of the VAT has rapidly ascended. In 1967, the European Economic Community decided to adopt the VAT as the common form of sales taxes among its member countries. As well as European Union member states, this wave has also reached main Asian countries (including China and Japan), Russia, Latin America, and the African continent. Now, the VAT is in force in more than 160 countries around the world. In terms of revenue collection, it represents the predominant part of a nation's fiscal revenue among member countries of the Organization for Economic Cooperation and Development (OECD) that have adopted VATs. As the most prominent exception among OECD countries, only the United States has not yet adopted it. The worldwide success and a few cases of failure of the VAT are tightly related to its technical aspect and the historical context of each country. In the case of France, the success of the VAT has been explained in terms of (1) the large tax base of the VAT, (2) the difficulty to commit fraud, (3) its promotive aspect of international trade and liberalization after World War II, and (4) the so-called "money machine" character that has financed the growth of the French welfare state. Some scholars have viewed that the failure of its introduction in the United States has been attributed to its character as a federal political system and the unpopularity of regressive indirect taxes in the country. However, very little is known about why many countries have adopted VATs while several countries have not or failed. The purpose of this session is to discuss (1) the causes of the diffusion of VAT at the national/federal level among 160 countries, (2) the unpopularity and the failure of its introduction in several countries such as the United States and Japan, and (3) historical consequences the choice of each country has provided such as taxpayer resistance and the hardship of middle class. Papers in this session do so by taking an historical and comparative approach and focusing on the historical, social, and political process how each country has succeeded or failed in obtaining taxpayer consent to the VAT and its introduction and expansion. The papers of this session also examine how important tax systems and tax ideas in other countries have influenced the policymaking process of tax system. In addition, this session attempts to provide policy implications that may enable the state to enhance the extractive capacity and taxpayer consent to its tax system. The products of this session will contribute to the literature of the VAT at the national, regional, and global level. Furthermore, they will help scholars who specialize in public finance, political science, sociology, and history re-emphasize the importance of taxing and spending in each state's history of public finance in terms of the history of tax thoughts, international relations, and the state itself.
E - Macroeconomics and Monetary Economics
E62 - Fiscal Policy
E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy • Stabilization • Treasury Policy
H - Public Economics
H2 - Taxation, Subsidies, and Revenue
H87 - International Fiscal Issues • International Public Goods
Seiichiro Mozumi - Yokohama National University
Anna Konishi - Teikyo University
Frédéric Tristram - Université Paris I, Panthéon-Sorbonne
Yuta Kakegai - Ibaraki University
Kathryn James - Monash University
Laurent Warlouzet - Sorbonne Université
Laurent Warlouzet - Sorbonne Université
The VAT in France
Frédéric Tristram - Université Paris I, Panthéon-Sorbonne
Tax Revolts of Cocoa Farmers in Nigeria
Bamidélé Aly - Independent Scholar
Can the European Common VAT Make A Fiscal Union? : Creation of the EC's Common VAT System and Own Resource for the EC budget
Anna Konishi - Teikyo University
Redistributive Implications of VAT in Scandinavia
Gunnar Lantz - Government Offices of Sweden
Abstract The fundamental shift away from tariffs to VAT was coordinated through international arenas such as the GATT and EEC. The extent to which VAT was to be used as a source of revenue was however decided separately in each country. In Scandinavia, there was an expansion of the welfare state towards a comprehensive and universalistic welfare state with a high degree of decommodification at the same time as the VAT was introduced. The introduction of VAT had a regressive effect on tax incidence across the population in relation to income. The revenue generated by VAT was on the other hand crucial to funding public goods and services that offered a higher relative benefit to people with lower incomes.
Why no VAT in the U.S.?
Ajay Mehrotra - American Bar Foundation and Northwestern University
The Origins of a Fiscal Outlier: The Abandonment of a Federal VAT in the Nixon Presidency
Seiichiro Mozumi - Yokohama National University
The United States remains a fiscal outlier among OECD countries: it has not implemented a national/federal value-added tax (VAT). Several administrations have failed to introduce it despite their efforts. Richard Nixon’s research request into the possibility of introducing a federal VAT in January 1972 was the first attempt in the late twentieth century. It was eventually abandoned and withdrawn in December 1972. This abandonment was a missed opportunity to introduce a federal VAT which could potentially finance social programs to support the poor and the middle class. It also marked the origin of certain historical characteristics of the American fiscal state: reliance on progressive income taxation and tax expenditures, the “fend-for-yourself federalism,” and weak extractive capacity.
Why Did the Introduction of Value-Added Tax Lag Behind in Japan?
Ryotaro Takahashi - Tokai University
Alain Bifani - The Ministry of Finance of Lebanon