Vat Notches, Voluntary Registration, and Bunching: Theory and UK Evidence

78 Pages Posted: 7 Oct 2019

See all articles by Miguel Almunia

Miguel Almunia

CUNEF

Li Liu

International Monetary Fund (IMF)

Ben Lockwood

University of Warwick

Eddy Hiu Fung Tam

London School of Economics & Political Science (LSE) - London School of Economics; University of Oxford - Center for Business Taxation

Multiple version iconThere are 2 versions of this paper

Date Written: September 2019

Abstract

Using administrative tax records for UK businesses, we document both bunching in annual turnover below the VAT registration threshold and persistent voluntary registration by almost half of the firms below the threshold. We develop a conceptual framework that can simultaneously explain these two apparently conflicting facts. The framework also predicts that higher intermediate input shares, lower product-market competition and a lower share of business to consumer (B2C) sales lead to voluntary registration. The predictions are exactly the opposite for bunching. We test the theory using linked VAT and corporation tax records from 2004-2014, finding empirical support for these predictions.

Keywords: bunching, UK, Value-Added Tax (VAT), Voluntary registration

JEL Classification: H21, H25, H32

Suggested Citation

Almunia, Miguel and Liu, Li and Lockwood, Ben and Tam, Hiu Fung and Tam, Hiu Fung, Vat Notches, Voluntary Registration, and Bunching: Theory and UK Evidence (September 2019). CEPR Discussion Paper No. DP13983, Available at SSRN: https://ssrn.com/abstract=3464510

Miguel Almunia (Contact Author)

CUNEF ( email )

Serrano Anguita 9
Madrid, Madrid 28004
Spain

HOME PAGE: http://www.miguelalmunia.eu

Li Liu

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Ben Lockwood

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, CV4 8UW
United Kingdom

Hiu Fung Tam

London School of Economics & Political Science (LSE) - London School of Economics

University of Oxford - Center for Business Taxation ( email )

Park End Street
Oxford, Oxfordshire OX1 1HP
United Kingdom

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