Application of decision analysis in the context of VAT rate changes

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JEL classification

• Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
• Firm Behavior: Empirical Analysis
• Business Taxes and Subsidies including sales and value-added (VAT)

Keywords

Decision analysis, risk, Saaty’s method, utility, value added tax

Abstract

The paper is focused on the impact of the potential transfer of hairdressing services from the standard to the reduced value added tax rate. Owing to this legislative change, the suppliers of these services would gain available funds. The aim of this paper is to identify the optimal way of using these funds through the application of the decision analysis method. The relevant data were obtained by questionnaire research. During decision making, respondents took into account various criteria, the weights of which were determined by Saaty’s method. They also took into account the effect of the risk of the given alternatives. The selected alternative was using the available funds for human capital, especially increasing the wages of current employees, which showed the best combination of the highest utility and the lowest risk level.