Wednesday, April 14, 2010

A Simple View of the VAT

Having lived in Europe for almost ten years I became acutely aware of the VAT. It is everywhere and it drives retail prices sky high. I give here a simple analysis that anyone should do for themselves.

1. Select several items which you have purchased recently as I did, a mouse, a router, and a video card.

2. The go to Amazon and look at the prices in the US, UK, France and Germany.

3. Get the exchange rate for the day on which you select the prices.

4. Calculate the prices all in dollars.

5. Then calculate the percent above the US prices for each. This is a measure of the impact of the VAT. Amazon is an amazing market price clearing tool. It allows the buyer to see the costs of tariffs and VAT.

First we show below the prices in dollars for each by country.

As expected we in the US have the lowest price except for the mouse in France. One may wonder why just for that but alas there must be some tale regarding mice in France but that is for another day.

Now we show the percent differences. This we do below.

The above tends to reflect the VAT taxes more than anything else. They easily are a 20% tax on everything you buy, and it gets worse depending on the number of chains of value added. That is why Europe is so expensive and moreover why they have a poor entrepreneurial base.

Perhaps some of our economic brains in DC should at least have to live under this oppression before assigning us to it.