Document Type : Research Paper
Authors
Abstract
Destination-based value added taxes (VATs) are commonly thought to encourage exports, while exports are exempt from tax but imports are taxed. Hence, it is a commonplace belief that value added tax encourages exports. The theory of international trade offers very different prediction. In the theoretical point of view, destination- based nature of VAT should have no effect on exports and imports. The reason is that exchange rate adjusts to undo the effects of VAT on exports and imports. Thus, in this study, the effect of value added tax on net exports has been examined in Iran and other Asian countries from 1985 to 2008. To this end, firstly a hypothesis is tested in which VATs affect net exports of the selected countries. Also, another hypothesis has been tested in which corporation income tax, as a domestic tax and an alternative of the value-added tax, affects net exports of the countries under consideration. For this purpose, this study has specified a theoretical and empirical net export model, and then has estimated the model by using the generalized method of moment (GMM). The estimation results show that value added tax has a negative effect on net exports in the short run. In addition, value added tax has been neutral and has had no impact on net exports in the long run. Unlike value added tax, corporation income tax has had a positive and significant effect on net exports in the short- run.
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