INTERNATIONAL VAT HARMONIZATION - MACROECONOMIC EFFECTS

Macroeconomic issues pertinent to the international and domestic effec ts of international VAT harmonization are highlighted, and VAT harmoni zation policies envisaged for Europe in 1992 are outlined. An intertem poral model is developed to analyze the incentive effects of various t ax policies and their welfare implications. Dynamic simulations reveal that the macroeconomic and welfare implications of VAT harmonization depend critically on the tax system and the degree of substitution gov erning temporal and intertemporal allocations of savings, investment, and labor. The simulations also reveal a potential for significant con flicts of interest within each country and between countries.