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Designing a Progressive VAT

Author

Listed:
  • Artur Swistak
  • Rita de la Feria

Abstract

This paper presents a novel approach to addressing VAT regressivity, by proposing the adoption of a progressive VAT: a single-rate, broad-base, VAT, whereby tax paid on consumption is re-paid to lower income households in real-time, at the moment of purchase. Such a system can effectively eliminate regressivity, while minimizing the political economy, cash-flow, and welfare stigma obstacles that are often associated with standard welfare transfers used in modern VAT systems. It would also have other significant advantages, particularly in terms of compliance incentives.

Suggested Citation

  • Artur Swistak & Rita de la Feria, 2024. "Designing a Progressive VAT," IMF Working Papers 2024/078, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2024/078
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