An optimal commodity tax approach is taken to compare trade taxes and VATs when some commodities are produced informally. Trade taxes apply to all imports and exports, including intermediate goods while the VAT applies only to sales by the formal sector and imports. The VAT can achieve...

It is well-known that cash-flow business taxes with full loss-offset, and their present-value equivalents, are neutral with respect to firms' investment decisions when firms are riskneutral and there are no distortions. We study the effects of cash-flow business taxation when there is bankruptcy...