The effect of reduced value added tax rates for labor-intensive services: Evidence from hairdressers in Finland during years 2007-2011

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dc.contributor Aalto-yliopisto fi
dc.contributor Aalto University en
dc.contributor.author Vane-Tempest, Maria
dc.date.accessioned 2016-03-04T10:15:49Z
dc.date.available 2016-03-04T10:15:49Z
dc.date.issued 2016
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/19826
dc.description.abstract The European Commission Directive 1999/85/EC allowed an experiment where the participant countries may apply one or two reduced VAT rates to specific labor-intensive services for a period of three years to study the impact of these reduced rates on job creation as well as combating the black economy. In Finland the chosen services were hairdressing services and minor repairing relating to bicycles, shoes, leather goods, clothing and household linen including alteration of clothing and household linen. The VAT rate was reduced from the general 22% rate to 8% from the beginning of 2007, and was meant to be in place until the end of 2010. In September 2010 it was decided that the experimental VAT reform would continue until the end of 2011. In this thesis I look into the European Commission's experiment of whether the reduced rates of value added tax did enhance employment in the specific labor-intensive services. The empirical part of the study is carried out by performing a difference-in-differences regression on the number of openings, number of closures and the stock of enterprises of both hairdressers and beauty salons, which were considered as the control group for hairdressing businesses. The results gotten from these regressions described how the reform affected hairdressing businesses when compared to beauty salons, for which the reduced VAT rates were not applied. The results of the study provide evidence that the reform did not increase demand or employment in the hairdressing sector. The demand for hairdressing businesses can thus be concluded to be inelastic, which suggests that it is not optimal or efficient to apply reduced VAT rates on this kind of labor-intensive services. en
dc.format.extent 44
dc.language.iso en en
dc.title The effect of reduced value added tax rates for labor-intensive services: Evidence from hairdressers in Finland during years 2007-2011 en
dc.type G2 Pro gradu, diplomityö fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Business en
dc.contributor.department Taloustieteen laitos fi
dc.contributor.department Department of Economics en
dc.subject.keyword Value added tax
dc.subject.keyword VAT
dc.subject.keyword difference-in-differences
dc.identifier.urn URN:NBN:fi:aalto-201603041459
dc.type.dcmitype text en
dc.programme.major Economics en
dc.programme.major Kansantaloustiede fi
dc.type.ontasot Master's thesis en
dc.type.ontasot Pro gradu tutkielma fi
dc.subject.helecon taloustieteet
dc.subject.helecon economic science
dc.subject.helecon kansantalous
dc.subject.helecon national economy
dc.subject.helecon palvelut
dc.subject.helecon service
dc.subject.helecon verotus
dc.subject.helecon taxation
dc.subject.helecon parturit
dc.subject.helecon barbers
dc.subject.helecon kampaamot
dc.subject.helecon hairdressing
dc.subject.helecon yrittäjyys
dc.subject.helecon entrepreneurship
dc.subject.helecon arvonlisävero
dc.subject.helecon value added tax
dc.ethesisid 14288
dc.date.dateaccepted 2016-02-01
dc.location P1 I


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