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The Distributional Effects of Value Added Tax in Ireland

Author

Listed:
  • EIMEAR LEAHY

    (Economic and Social Research Institute, Dublin)

  • SEÁN LYONS

    (Economic and Social Research Institute Dublin, Trinity College Dublin)

  • RICHARD S. J. TOL

    (Economic and Social Research Institute Dublin, Trinity College Dublin, Institute for Environmental Studies Vrije Universiteit Amsterdam, Department of Spatial Economics Vrije Universiteit Amsterdam)

Abstract

In this paper we examine the distributional effects of Value Added Tax (VAT) in Ireland. Using the 2004/2005 Household Budget Survey, we assess the amount of VAT that households pay as a proportion of weekly disposable income. We measure VAT payments by equivalised income decile, households of different composition and different household sizes. The current system is highly regressive. With the use of a micro-simulation model we also estimate the impact of changing the VAT rate on certain groups of items and the associated change in revenue. We also consider how the imposition of a flat rate across all goods and services would affect households in different categories. The Irish Government has recently announced that it proposes to increase the standard rate of VAT to 22 per cent in 2013 and to 23 per cent in 2014. We examine the distributional implications of such increases. The general pattern of results shows that those hardest hit are households in the first income decile, households in rural areas, 6 person households and households containing a single adult with children.

Suggested Citation

  • Eimear Leahy & Seán Lyons & Richard S. J. Tol, 2011. "The Distributional Effects of Value Added Tax in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 42(2), pages 213-235.
  • Handle: RePEc:eso:journl:v:42:y:2011:i:2:p:213-235
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    References listed on IDEAS

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    1. Richard S. J. Tol & Tim Callan & Thomas Conefrey & John FitzGerald & Seán Lyons & Laura Malaguzzi Valeri & Susan Scott, 2008. "A Carbon Tax for Ireland," Papers WP246, Economic and Social Research Institute (ESRI).
    2. Callan, Tim & Lyons, Sean & Scott, Susan & Tol, Richard S.J. & Verde, Stefano, 2009. "The distributional implications of a carbon tax in Ireland," Energy Policy, Elsevier, vol. 37(2), pages 407-412, February.
    3. Tim Callan & Claire Keane & John Walsh, 2010. "What Role for Property Taxes in Ireland?," The Economic and Social Review, Economic and Social Studies, vol. 41(1), pages 87-107.
    4. Verde, Stefano & Tol, Richard S. J., 2009. "The Distributional Impact of a Carbon Tax in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 40(3), pages 317-338.
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    Cited by:

    1. Callan, Tim & Keane, Claire & Savage, Michael & Walsh, John R., 2013. "Distributional Impact of Tax, Welfare and Public Service Pay Policies: Budget 2014 and Budgets 2009-2014," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    2. De Agostini, Paola & Paulus, Alari & Sutherland, Holly & Tasseva, Iva Valentinova, 2014. "The effect of tax-benefit changes on the income distribution in EU countries since the beginning of the economic crisis," EUROMOD Working Papers EM9/14, EUROMOD at the Institute for Social and Economic Research.
    3. Claudio A Agostini & Marcela Perticara & Javiera Selman, 2014. "An Earned Income Tax Proposal for Chile," Working Papers wp_037, Adolfo Ibáñez University, School of Government.
    4. Duffy, David & FitzGerald, John & Timoney, Kevin & Byrne, David, 2013. "Quarterly Economic Commentary, Winter 2013," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20134, April.
    5. Claudio A., Agostini & Javiera, Selman & Marcela, Perticará, 2013. "Una propuesta de crédito tributario al ingreso para Chile," Estudios Públicos, Centro de Estudios Públicos, vol. 0(129), pages 49-104.
    6. IonuÈ›-Constantin Cuceu, 2016. "The Distributional Effects of Value Added Tax," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 450-454, February.
    7. Thomas, Alastair, 2015. "The Distributional Effects of Consumption Taxes in New Zealand," Working Paper Series 4668, Victoria University of Wellington, Chair in Public Finance.
    8. Wasiu Adekunle Are, 2012. "Poverty-Reducing Directions of Indirect Marginal Tax Reforms in Ireland," Working Papers 201230, School of Economics, University College Dublin.
    9. David (David Patrick) Madden & Michael Savage, 2015. "Which Households Matter Most? Capturing Equity Considerations in Tax Reform via Generalised Social Marginal Welfare Weights," Working Papers 201502, School of Economics, University College Dublin.
    10. Lockwood, Matthew, 2016. "The UK's Levy Control Framework for renewable electricity support: Effects and significance," Energy Policy, Elsevier, vol. 97(C), pages 193-201.
    11. repec:esr:forcas:qec20164 is not listed on IDEAS

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