The main purpose of this paper is to analyze the impacts of adjusting value-added tax (VAT) on Taiwan's economy. We follow the framework adopted by Wu and Hsu (1994), Wu (1995a), Wu (1995) and Wu et al. (1996), to construct a macro-econometrics model containing the government budget, and estimate the impacts of VAT adjustments on the macro-economy. According to the results of various simulations, with distinct types of government expenditures, the adjustment patterns of macro variables such as private consumption, private investment, and gross domestic product (GDP) differs. In sum, if the government reduces its debts with the additional taxes resulting from the increased VAT rates, the positive benefits to our economy are most significant.