Comparison of VAT and sales tax

This master thesis compares value-added tax (VAT) and sales tax, both of these taxes are considered to be general consumption taxes. The purpose of this thesis is to verify the existence of „spontaneous harmonization effect“ of VAT rates in the European Union and Sales tax rates in the United States of America. The first part of the thesis explains the basic principles of VAT and sales tax. In the second chapter, both consumption taxes will be compared utilizing selected macroeconomic indicators, such as tax revenue to GDP, tax revenue and tax freedom day. The third chapter focuses on a qualitative comparison of both taxes by answering these questions: Which tax system is less demanding for compliance? How much does it cost to collect and remit the tax? What is the average pass-through rate after a change in rates? Which system is inherently prone to fraud? Ultimately, a convergence analysis will be conducted using the coefficient of variation. Basic VAT rates in the EU and combined (state and local) rates in the US will be examined in the period from 1980 to 2023. From the conducted analysis it is evident that the spontaneous harmonization effect is in place. The EU's VAT rates converge faster than Sales tax rates in the US.