Value Added Tax Impacton Economic Activity: Importance, Implication and Assessment –The Romanian Experience

Abstract

This paper studies the impact of VAT upon the economic activity in Romania. By developing a new mathematical model we offer several dy-namic and effcient possibilities for observing the modifcations caused by the temporary reduc-tion of taxes upon the personal incomes which suggest that the resulting additional incomes are often saved and less consumed. Analyzing several temporary reductions in incomes, the model describes also a scheme regarding the developments of economic growth. Based on this scheme, are revealed the different arrangements in which a present economic activity infuences a future one. According to the proposed model, it is highlighted that the national income increases as a response to the aggregated demand.