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The Impact of VAT Changes on the Households´ Real Incomes

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  • Libor Dušek
  • Petr Janský

Abstract

The article evaluates the distributional impacts of the value added tax changes in the Czech Republic using the Household Budget Survey, a representative sample of approximately 3000 households. It evaluates the impacts on the living standards both for the VAT reform that was actually approved in 2011, as well as for alternative reform proposals that were discussed during 2011 and that also considered a reduction in payroll tax rates. The estimates refl ect the recent empirical fi ndings about the incidence of consumption and payroll taxes. Unifying the VAT at a single tax rate has an almost proportional impact on the households from the 2nd to impact 10th income decile while having a disproportionately larger impact on the poorest decile. A reduction in the payroll tax would have reduced the progressivity of the tax system across the entire income range.

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Bibliographic Info

Article provided by University of Economics, Prague in its journal Politická ekonomie.

Volume (Year): 2012 (2012)
Issue (Month): 3 ()
Pages: 309-329

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Handle: RePEc:prg:jnlpol:v:2012:y:2012:i:3:id:844:p:309-329

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Related research

Keywords: value added tax; impact evaluation; households; evidence-based policy; Czech Republic;

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References

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  1. Kevin Lang, 2003. "The Effect of the Payroll Tax on Earnings: A Test of Competing Models of Wage Determination," NBER Working Papers 9537, National Bureau of Economic Research, Inc.
  2. Besley, Timothy J. & Rosen, Harvey S., 1999. "Sales Taxes and Prices: An Empirical Analysis," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 157-78, June.
  3. Sam Peltzman, 1998. "Prices Rise Faster Than They Fall," University of Chicago - George G. Stigler Center for Study of Economy and State 142, Chicago - Center for Study of Economy and State.
  4. Holmlund, Bertil, 1983. " Payroll Taxes and Wage Inflation: The Swedish Experience," Scandinavian Journal of Economics, Wiley Blackwell, vol. 85(1), pages 1-15.
  5. Hamermesh, Daniel S, 1980. "Factor Market Dynamics and the Incidence of Taxes and Subsidies," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 751-64, December.
  6. Bingley, Paul & Lanot, Gauthier, 2002. "The incidence of income tax on wages and labour supply," Journal of Public Economics, Elsevier, vol. 83(2), pages 173-194, February.
  7. Poterba, James M., 1996. "Retail Price Reactions to Changes in State and Local Sales Taxes," National Tax Journal, National Tax Association, vol. 49(2), pages 165-76, June.
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