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VAT notches, voluntary registration, and bunching : theory and UK evidence

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Liu, Li, Lockwood, Ben, Almunia, Miguel and Tam, Eddy H. F. (2021) VAT notches, voluntary registration, and bunching : theory and UK evidence. Review of Economics and Statistics, 103 (1). pp. 151-164. doi:10.1162/rest_a_00884

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Official URL: https://doi.org/10.1162/rest_a_00884

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Abstract

Using adminstrative tax records for UK businesses, we document both bunching in annual turnover below the VAT registration threshold and persistent voluntary registration by almost half of the firms below the threshold. We develop a conceptual framework that can simultaneously explain these two apparently conflicting facts. The framework also predicts that higher intermediate input shares, lower product-market competition and a lower share of business to consumer (B2C) sales lead to voluntary registration. The predictions are exactly the opposite for bunching. We test the theory using linked VAT and corporation tax records from 2004-2014, finding empirical support for these predictions.

Item Type: Journal Article
Subjects: H Social Sciences > HJ Public Finance
H Social Sciences > HV Social pathology. Social and public welfare
Divisions: Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH): Value-added tax, Value-added tax -- Great Britain, Tax evasion, Tax evasion -- Great Britain, Income tax -- Great Britain -- Rates and tables
Journal or Publication Title: Review of Economics and Statistics
Publisher: MIT Press
ISSN: 0034-6535
Official Date: March 2021
Dates:
DateEvent
March 2021Published
1 November 2019Available
19 June 2019Accepted
Volume: 103
Number: 1
Number of Pages: 45
Page Range: pp. 151-164
DOI: 10.1162/rest_a_00884
Status: Peer Reviewed
Publication Status: Published
Publisher Statement: This is the author’s final version. The article has been accepted for publication in Review of Economics and Statistics © 2019 The MIT Press
Access rights to Published version: Restricted or Subscription Access
Copyright Holders: © 2019 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
RIOXX Funder/Project Grant:
Project/Grant IDRIOXX Funder NameFunder ID
ES/L000016/1[ESRC] Economic and Social Research Councilhttp://dx.doi.org/10.13039/501100000269
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