Financial VAT may improve trade openness

Abstract

This paper theoretically and empirically analyzes how the taxation of financial services under VAT (‘financial VAT’) influences trade openness. The empirical analysis uses data from the OECD and 36 European Union countries for the period 1960–2019. Dynamic panel data techniques are used, concretely the GMM System, and an unbalanced panel is handled. The results corroborate that financial VAT, and in particular the ‘option-to-tax’ method applied by some countries in the European Union, are positively associated with a country’s trade openness. © 2021 Informa UK Limited, trading as Taylor & Francis Group