Mercatus Center Senior Research Fellow Veronique de Rugy examines the true cost to the economy of instituting a Value Added Tax (VAT). The VAT, like any tax, imposes greater costs on society than simply the revenue that it collects. The above graph illustrates Randall Holcombe’s estimates of the net costs of the VAT – the total of deadweight loss, compliance and administrative costs. These net costs range from $75.5 billion dollars for a 1% VAT to $233.8 billion dollars for a 10% tax.
Veronique de Rugy explains why instituting a VAT is the wrong policy.