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Are Consumption Taxes Regressive?

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  • John Creedy

Abstract

It is often argued that a general consumption tax is necessarily regressive, particularly because households with high incomes typically save relatively more than those with low incomes. This paper uses very simple tax models to examine the combination of income and consumption taxes. It suggests that it is preferable to consider the overall impact of all taxes and transfers rather than relating payments of a single tax to gross income, instead of the relevant tax base. Insofar as savings might be relevant, attention should be given to the income tax treatment of investment income.

Suggested Citation

  • John Creedy, 1998. "Are Consumption Taxes Regressive?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 31(2), pages 107-116, June.
    • Handle: RePEc:bla:ausecr:v:31:y:1998:i:2:p:107-116
    DOI: 10.1111/1467-8462.00057
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    Cited by:

    1. Mukherjee, Sacchidananda, 2023. "Distributional Impact of Indian GST," Working Papers 23/403, National Institute of Public Finance and Policy.
    2. Corrado Benassi & Emanuela Randon, 2021. "The distribution of the tax burden and the income distribution: theory and empirical evidence," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 38(3), pages 1087-1108, October.
    3. Francesca Gastaldi & Paolo Liberati & Elena Pisano & Simone Tedeschi, 2017. "Regressivity-Reducing VAT Reforms," International Journal of Microsimulation, International Microsimulation Association, vol. 10(1), pages 39-72.
    4. Wakolbinger, Florian & Dreer, Elisabeth & Schneider, Friedrich & Neumärker, Bernhard, 2020. "Konsumsteuer finanziertes BGE in Deutschland," FRIBIS Discussion Paper Series 01-2020, University of Freiburg, Freiburg Institute for Basic Income Studies (FRIBIS).
    5. Thomas, Alastair, 2015. "The Distributional Effects of Consumption Taxes in New Zealand," Working Paper Series 19331, Victoria University of Wellington, Chair in Public Finance.
    6. José Sánchez Maldonado & Salvador Gómez Sala, 2006. "The Reform of Indirect Taxation in Spain: VAT and Excise," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0607, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    7. Christopher Ball & John Creedy & Michael Ryan, 2016. "Food expenditure and GST in New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 50(2), pages 115-128, August.
    8. John Creedy, 2009. "Personal Income Taxation: From Theory to Policy," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 42(4), pages 496-506, December.
    9. Alastair Thomas, 2022. "Reassessing the regressivity of the VAT," Fiscal Studies, John Wiley & Sons, vol. 43(1), pages 23-38, March.
    10. Thomas, Alastair, 2015. "The Distributional Effects of Consumption Taxes in New Zealand," Working Paper Series 4668, Victoria University of Wellington, Chair in Public Finance.
    11. Arsić, Milojko & Altiparmakov, Nikola, 2013. "Equity aspects of VAT in emerging European countries: A case study of Serbia," Economic Systems, Elsevier, vol. 37(2), pages 171-186.
    12. Oliver, Xisco & Encabo, Isabel & Padilha, Giovanni & Piccoli, Luca, 2022. "Reducing the regressivity of indirect taxation in Brazil through a personalized value-added tax," Journal of Policy Modeling, Elsevier, vol. 44(5), pages 903-919.
    13. repec:ijm:journl:v109:y:2017:i:1:p:39-72 is not listed on IDEAS
    14. Artur Świstak & Sebastian Wawrzak & Agnieszka Alińska, 2015. "In pursuit of tax equity: lessons from VAT rate structure adjustment in Poland," Financial Theory and Practice, Institute of Public Finance, vol. 39(2), pages 115-137.
    15. Jim Fischer, 2017. "Is consumption tax regressive? A libertarian perspective," Proceedings of International Academic Conferences 5808138, International Institute of Social and Economic Sciences.
    16. repec:ipf:finteo:v:39:y:2015:i:3:p:115-137 is not listed on IDEAS

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