In the tax policy debate, differentiation of value-added taxes (VAT) is often justified by distributional concerns. Our quantitative analysis for Germany indicates that such concerns are misplaced. We find that the abolition of VAT differentiation has only negligible redistributive effects. Instead, reduced VAT rates are found to act as industry-specific subsidies. Whereas the overall welfare effects of pure VAT reforms are very small, a revenue-neutral introduction of a harmonized VAT combined with reductions in the marginal income tax rates or social security contributions turns out to yield substantial welfare gains for all households.
No Reference information available - sign in for access.
No Citation information available - sign in for access.
No Supplementary Data.
No Article Media
Document Type: Research Article
Netherlands Bureau for Economic Policy Analysis (CPB), Den Haag, The Netherlands
Department of Economics, University of Oldenburg, Germany,Centre for European Economic Research (ZEW), Mannheim, Germany
IFO Institute and Department of Economics, Munich University, Germany
Calculus Consult, Plochingen, Germany
Publication date: 2010-07-01
More about this publication?