The papers presented were: ‘Quality Signaling through Certification in Developing Countries’ by Emmanuelle Auriol, Professor of Economics at Toulouse School of Economics, France, and ‘How does VAT Tax the Informal Economy?’ by Grégoire Rota-Graziosi, Professor of Economics, Université Clermont-Auvergne, France.
Two papers presented as part of EDRI’s research seminar series on the 13th of October 2017 at the institute’s conference room by French professors of economics. The papers presented were: ‘Quality Signaling through Certification in Developing Countries’ by Emmanuelle Auriol, Professor of Economics at Toulouse School of Economics, France, and ‘How does VAT Tax the Informal Economy?’ by Grégoire Rota-Graziosi, Professor of Economics, Université Clermont-Auvergne, France.
Please click here to read the abstracts of the papers.
Quality signaling through certification in developing countries (by Emmanuelle Auriol and Steven G.M. Schilizzi, Professors, Toulouse School of Economics)
This paper studies how signaling the credence attributes of consumer goods distorts their market equilibrium in developing countries. Costs of certification, sunk in order to achieve credibility, play a key role in producing an oligopolistic market, leading to high prices that forma barrier for consumers in the South. To lower the cost, certification is better achieved by a single independent body which can be financed either by end consumers, through a fee, or by public subsidies. The paper identifies the conditions under which each funding mechanism is most efficient, taking into account the government’s budget constraint. The theoretical analysis is motivated with reference to agricultural seed certification.
How does VAT tax the informal economy? (by Grégoire Rota-Graziosi, Professor in Economics and Director of CERDI-CNRS, Université Clermont-Auvergne, France)
The Value Added Tax is not only a consumption tax. It is more than that, especially in developing countries. Its self- enforcing mechanism distinguishes VAT from sales or excise taxes by discriminating VAT liable firms from non- liable -or equivalently informal- firms. We consider here the VAT liability threshold as the main distinction between formal and informal firms. We develop then a simple network approach to capture the interactions between formal and informal firms. Applying this approach to developing economies such as Benin or Mauritania (where data are available), we conclude that a significant share of VAT revenue (60 to 70 percent) is not based on the final consumption of households, but relies on the intermediary consumption of informal firms of goods or services provided by formal firms, that is VAT liable firms. The network approach allows us to illustrate the VAT mechanism through a directed weighted graph. It identifies the central branches or sectors in terms of VAT revenue collection. Finally, this approach can provide an alternative way to appreciate the VAT gap. Such developments may be applied to the Ethiopian case.