Date Added: Feb 2011
The exemption for Value Added Taxation (VAT) can be used to pursue distributive objectives. Goods like food, housing, medicine, or infrastructure services (water, telecommunication, postal) are very often partially or totally exempted from VAT. The exemption of infrastructure services had been frequently combined with market entry restrictions. Both instruments should assure the fulfilling of the Universal Service Obligation (USO). VAT-exemption leads to two problems, at least: the expectable financial gain, which can be achieved by the exempted firm, is unpredictable, and the welfare consequences depend on the prevailing type of market structure (competition, monopoly with or without price discrimination, or dominant firm).