N early all countries have now adopted VAT, and it has become the major source of revenue for governments around the world, including China. Compared to other indirect taxes, such as the BT, VAT has attracted increasing attention because it is self-enforcing.
If we have perfect enforcement, there is no distinction between VAT and its alternative indirect taxes. Researchers have studied how VAT functions as a self-enforcing tax Pomeranz, ; Waseem, , yet they have provided little evidence comparing the compliance effect of VAT as opposed to its alternatives.
This paper Li and Wang, forthcoming fills this gap in the literature. Figure 2 plots the trend of reported sales and reported costs for reformed sectors before and nonreformed sectors before We use sectors that were not affected by the reform until as the control group.
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