tax law. This section ...rst discusses our sample and data sources and then proceeds to identify the motivation behind each tax change.

# 3.1 Sample

Our sample comprises 51 countries (21 industrial and 30 developing) for the period 1970-2014. Given the lack of readily-available data on average marginal individual and/or corporate income tax rates on a global scale, we focus our e¤orts on creating a new series for quarterly standard VAT rates, building on Vegh and Vuletin (2015) and Riera-Crichton, Vegh, and Vuletin (2016).<sup>9</sup> We believe that this signi...cant e¤ort in collecting VAT rates is crucial for any study analyzing tax policy in the developing world as well as in Europe, where indirect/value-added taxation is one of the main tax revenue instruments.<sup>10</sup> Due to data availability, we use the standard VAT rate as a proxy for overall VAT policy. Such an approach could, in principle, raise concerns due to the omission of reduced VAT rates and/or exempted goods for some countries, as well as possible changes over time in the goods covered by the di¤erent rates. While data limitations prevent us from assessing the practical relevance of this concern for our whole sample of 51 countries, Vegh and Vuletin (2015) show, for a subset of 9 industrial countries, that these concerns are not warranted. First, the standard rate typically applies to most goods while reduced tax rates (if present at all) typically apply to a small subset of particular goods, including some food categories and child/elderly care. The average share of transactions covered by the standard VAT rate is about 75 percent of the total tax base. Second, the standard and average reduced VAT rates tend to be highly and positively correlated over time. In 80 percent of the countries, this correlation is larger than 0.5 and statistically signi...cant at the one percent level. Third, the share of transactions covered by di¤erent statutory tax rates does not vary much over time in any given country. As a result, the standard VAT rate explains about 85 percent of the observed variability of the e¤ective VAT rate (computed as the average of the di¤erent VAT rates weighted by their share in transactions as a percentage of the taxable base).<sup>11</sup>

# 3.2 Sources

The VAT rates were obtained from various primary sources, including countries’ revenue agencies, national libraries, books, newspapers, tax law experts, and research and policy papers. In most cases,

> 9 Vegh and Vuletin (2015) build a novel annual dataset of tax rates for 62 countries for the period 1960-2013 that comprises corporate income, highest personal income, and standard VAT rates. Riera-Crichton, Vegh, and Vuletin (2016) build a new quarterly standard VAT rate series for 14 industrial countries for the period 1980-2009.

> 10 Indirect (value-added) taxes represent, on average, 43 (28) percent of total tax revenues in industrial countries and 47 (32) percent in the developing world.

> 11 While the use of standard VAT rates is a good proxy for overall VAT tax policy, our narrative analysis will take into account the fact that, in some cases, changes in the standard VAT rate are intended to compensate for changes in the VAT base and/or VAT reduced rates.

9