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The Distributional Effects of Value Added Tax in Ireland


    (Economic and Social Research Institute, Dublin)


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


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

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.

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Article provided by Economic and Social Studies in its journal Economic and Social Review.

Volume (Year): 42 (2011)
Issue (Month): 2 ()
Pages: 213-235

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Handle: RePEc:eso:journl:v:42:y:2011:i:2:p:213-235
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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 & Keane, Claire & Walsh, John R., 2009. "What Role for Property Taxes in Ireland?," Papers WP322, Economic and Social Research Institute (ESRI).
  3. 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.
  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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