Has the VAT proved, as its proponents claim, an especially effective form of taxation? To address this, this paper first shows that a tax innovation-such as the introduction of a VAT- reduces the marginal cost of public funds if and only if it also leads an optimizing government to increase the...

Should tax reforms be guided by rules of thumb suggested by the IMF, or directions or reform based on analytical approaches, such as optimal tax theory? In many cases, the applications of the directions of reform—which suggest a differentiation of the structure given distributional, incentive...