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# C. Do Countries With Sing;: VAT Rates MobUlize More Revenues?

The countries included in the study represent a diverse group on a wide spectrum of **VAT** structures, bases and revenues. Ir tern's of VAT structure, two groups of countries are identified: single-rate and multiple-rate countries. Given the revenue performance data and the consensus preference of tax experts for si:'gle rates, we **car** ask a basic question: do exist:ng data on VAT support the contention that countries with single rate mobilize more revenue than those that i e multiple rates?

Separate estimates for single and multipie rates country subgroups are given in **Table** 1. With the exception of the RANGE variable (which has to be dropped in the single VAT rate model), the results of both country groups support the hypotheses confirmed by the estimates for the full sample of countries. However, the magnitude of the estimated coefficients in the two sub-groups vary. We carried out a structural change test (Chow 1960) to test tie hypothesis that the regression coefficients, taken jointly, are equJ. This hypothesis is rejected at the _5_ percent level of significance. Thus, _the patern of VAT revenue statistically differs between the two sub-groups of countries._ Of particular interest is the difference in' the revenue generation coefficient. For the single rate group, the VAT generat2s 0.503 of GDP for every percentage point of the rate, which is nearly 50 percent higher than the multiple rates group coefficient of 0.339. However, this difference is not statistically significant. The difference can not be _exclusively_ explained in terms of VAT rates. This implies that different revenue performance in the two groups of countries are due _not only_ to the use of single or mu!tiple VAT rates, but also to other factors, which probably include the VAT base and administrative capacity. Our empirical findings indicates that the difference in the base coefficient is weakly statistically significant (see column 4 in Table 1).

Our relying on the a- ilable standard rates, rather than weighted rates da!a for multiple rate countries, makes the results of multiple rates models tentative. However, despite needed improvements, our analysis provides preliminary estimates which are consistent with the theoretical and practical wisdom on VAT, with many country case studies, and with the available data. As such, it is hoped to provide a stimulus and a benchmark for further empirical research on VAT.

## IV. Conclusion and Policy Implications

We empirically analyzed determinants of VAT revenue on a sample of 20 single rate countries, a full sample of 34 countries and a small sample of multiple rate countries. The results of the regressions confoi.n to the conventional views on the key variables influencing the VAT revenue performance: the rate, the base, and the rate dispersion. The rate and the base coefficients are significant and with the expected positive sign in all of the estimated versions of the model, indicating their robustness. This robustness, particularly in the single rate models, makes it possible to use an estimated model, with appropriate caveats, to predict potential (and expected) VAT revenues in countries that are contemplating the introduction of a single rate VAT (e.g., Bulgaria). Also, the dispersion of rates is found to negatively affect VAT revenues.

Empirical results confirm another conventional view that VAT generates, other things constant, higher revenue in single VAT rate countries than in multiple rates countries. The difference in the estimated models for the two country groups is statistically significant indicating a structural change. However, this change in the pattern of VAT revenues cannot be exclusively explained in