DP20346 Taxation and Industrialization: Global Evidence from the Introduction of the Value Added Tax

• Rabah Arezki Frederick Van Der Ploeg Grégoire Rota-Graziosi Van Dao Le
13 Jun 2025

The introduction of the Value Added Tax (VAT) has been widely perceived as a successful instrument, boosting government revenue and stimulating industrialization. However, in countries that are heavily dependent on exports of natural resources the introduction of the VAT has led on average to lower tax revenues and did not stimulate industrialization. The VAT thus did not help these countries to diversify away from the natural resource sector contrary to its promise. This suggests that the VAT in those countries has failed and should be redesigned. The results indicate a novel channel for the resource curse hinging on the interaction between economic structure and the design of tax systems.