Page 26 - Azerbaijan State University of Economics

Aynur Suleymanova: Assessment of Laffer Points of the I and II Types of VAT (on the
Example of Russian Federation, Kazakhstan and Azerbaijan Republics

2,000,000

1,600,000

800,000 1,200,000

400,000 800,000

0 400,000

-400,000

-800,000
06 07 08 09 10 11 12 13 14 15 16 17

Residual Actual Fitted

Graph 2. Plot of the Actual, Fitted (6) and residual values of VAT revenues for the Republic
of Kazakhstan.

According to the equation (6), the level of tax burden on VAT that maximizes VAT
revenues in the Republic of Kazakhstan equals 2.93 percent. For comparison, we can
note that, in 2017 the level of tax burden on VAT was 3.2 percent. From this result,
we can reasonably conclude that for reaching the maximum level of VAT revenues
in the Republic of Kazakhstan it is advisable to reduce the VAT rate.

And now let's try to determine the optimal level of tax burden on VAT for The
Republic of Azerbaijan. First we estimate the following regression equation for
evaluating the type I Laffer point:

LOG(GDP_CURP_NC_AZE) = C(1) + C(2)*VAT_TB_AZE + C(3)*VAT_ TB_ AZE^2 +
[AR(1)=C(4)] (7)

Here GDP_CURP_NC_AZE is GDP at current prices of the Republic of Azerbaijan,
VAT_TB_AZE is the level of tax burden on VAT in the Republic of Azerbaijan.

The results obtained from econometric estimation of the regression equation (7) are
as follows:

LOG(GDP_CURP_NC_AZE) = 16.0031111494 + 1.28972141689*VAT_TB_AZE -
0.243851860273*VAT_TB_AZE^2 + [AR(1)=0.934762422515] (8)
(t-Statistic) (40.37882) (2.592171) (-2.379073)
R-squared = 0.900117; Adjusted R-squared = 0.843041; Durbin-Watson stat = 1.667635

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