Working Paper: CEPR ID: DP13983
Authors: Li Liu; Ben Lockwood; Miguel Almunia; Eddy H.F. Tam
Abstract: Using administrative 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.
Keywords: Value-Added Tax; VAT; Voluntary Registration; Bunching; UK
JEL Codes: H21; H25; H32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher B2C sales (L81) | Higher likelihood of bunching below the threshold (C24) |
| Lower input costs relative to sales (D22) | Higher likelihood of bunching below the threshold (C24) |
| Higher product market competition (L19) | Higher likelihood of bunching below the threshold (C24) |
| Higher intermediate input shares (D33) | Higher likelihood of voluntary registration (K16) |
| Lower B2C sales (L81) | Higher likelihood of voluntary registration (K16) |
| Lower product market competition (L13) | Higher likelihood of voluntary registration (K16) |