The OECD has published a taxation working paper ‘Reassessing
the regressivity of the VAT’. The paper ‘reassesses the often-made
conclusion that VAT is a regressive tax’ and considers the competing methodological
approaches used in previous studies of the distributional effects of VAT. Its
analysis of the distributional effects of VAT indicates that VAT is either
roughly proportional or slightly progressive in most of the 27 OECD countries
examined.
The results for a small number of countries, however, highlight
that broad-based VAT systems that have few reduced VAT rates or exemptions can
produce a degree of ‘regressivity’, emphasising the importance of ensuring the
progressivity of the tax-benefit system in order to compensate poorer
households for the loss in purchasing power from paying VAT.
The OECD has published a taxation working paper ‘Reassessing
the regressivity of the VAT’. The paper ‘reassesses the often-made
conclusion that VAT is a regressive tax’ and considers the competing methodological
approaches used in previous studies of the distributional effects of VAT. Its
analysis of the distributional effects of VAT indicates that VAT is either
roughly proportional or slightly progressive in most of the 27 OECD countries
examined.
The results for a small number of countries, however, highlight
that broad-based VAT systems that have few reduced VAT rates or exemptions can
produce a degree of ‘regressivity’, emphasising the importance of ensuring the
progressivity of the tax-benefit system in order to compensate poorer
households for the loss in purchasing power from paying VAT.
