How Much Does Mobility Matter for Value-Added Tax Revenue? Cross-Country Evidence around COVID-19

Countries need to evaluate both costs and benefits when mandating mobility restrictions for their population. This paper studies one edge of this debate. Namely, to what extent mobility reductions and confinement measures impact Value Added Tax (VAT) collection, which is an increasingly important type of fiscal revenue. Using evidence across twenty nations and over time, we measure these effects around the COVID-19 Pandemic. For that, we benefit from the novel IDB-CIAT monthly dataset on aggregate VAT revenues (2019-2020), combining it with both mobility-restriction policies and mobility outcomes. On average, monthly VAT revenues fell up to 30% around the event of largest drop in mobility for each country. We also estimate mobility elasticities of VAT revenue. Mobility-restriction policies rising by 10% were associated with drops in VAT of 1.4%; while a 10% rise in actual mobility decreased VAT revenues by 3%. Furthermore, we show both elasticities were significantly smaller in the last quarter of 2020. Beyond the pandemic, results matter as a benchmark for macroeconomic variables under large disruptions.