Tyler Cowen not too long ago made an uncharacteristic mistake:
However there may be one other strategy to pose the query and that’s “ought to the assets within the EU be allotted towards export, or not?” After which exports are VAT-free, and within-EU gross sales typically usually are not VAT-free. So there may be an encouragement to exports right here. America has gross sales taxes, however VAT charges often are increased. Thus you’ll be able to say that Europe does extra to encourage exporters than does america. After all you’ll be able to say the identical about many different European authorities interventions. Germany’s infamous Sunday closing legal guidelines additionally encourage extra exports. Ship it to the US, and let it’s bought on a Sunday, bitte! (Simply not in Paramus, NJ.)
From an American perspective, I don’t assume something is mistaken with this type of “export subsidy” (and that’s not how I’d describe it in a first-order sense, however we’re steelmanning right here).
Observe that he didn’t name a VAT an export subsidy, however did recommend that “there may be an encouragement to exports right here”. I don’t see how that’s true. If in case you have a 20% VAT, and export items to a different nation with a 20% VAT, clearly there isn’t any benefit. However what should you export to a rustic with no VAT?
Contemplate a $100 merchandise that sells in Europe for $120 because of the VAT. Based on PPP it will promote for $100 in nations and not using a VAT. So as soon as once more, there isn’t any apparent encouragement to export. (PPP might not maintain for different causes, however that has no bearing on whether or not VATs encourage exports.)
I’m not suggesting that you simply can’t assemble an argument the place VATs encourage exports. Thus, should you in contrast a VAT to a state of affairs with no VAT and a much bigger finances deficit, the imposition of a VAT may end in a decrease actual alternate charge and extra exports. However that’s true of any gadget for elevating tax revenues, and I don’t see Tyler making that argument. The truth that within-EU gross sales are not VAT-free appears fully irrelevant, until I’m lacking one thing.
[The original post had a typo, omitting the word “not”]
One different level, and that is not geared toward Tyler’s submit. If it had been true that VATs had been like export subsidies, then they might be precisely the other of tariffs. European tariffs discourage US companies from exporting to Europe. European export subsidies would encourage US companies to export to Europe, as export subsidies are equal to import subsidies. So if VATs had been like export subsidies, then they might even be the precise reverse of import taxes.