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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

    as
    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. 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.
    3. 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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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Who pays tax in Ireland? The little quiz revisited
      by Ronan Lyons in Ronan Lyons on 2012-04-10 16:52:24

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    2. Cuceu Ionuţ-Constantin & Văidean Viorela-Ligia, 2018. "Redistributing Income through VAT," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 588-592, December.
    3. Luca Gandullia & Lucia Leporatti, 2019. "Distributional effects of gambling taxes: empirical evidence from Italy," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 17(4), pages 565-590, December.
    4. 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.
    5. Susan Namirembe Kavuma & Christine Byaruhanga & Nicholas Musoke & Patrick Loke & Michael Noble & Gemma Wright, 2020. "An analysis of the distributional impact of excise duty in Uganda using a tax-benefit microsimulation model," WIDER Working Paper Series wp-2020-70, World Institute for Development Economic Research (UNU-WIDER).
    6. Thomas, Alastair, 2015. "The Distributional Effects of Consumption Taxes in New Zealand," Working Paper Series 4668, Victoria University of Wellington, Chair in Public Finance.
    7. 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.
    8. Duffy, David & FitzGerald, John & Timoney, Kevin & Byrne, David, 2013. "Quarterly Economic Commentary, Winter 2013," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20134, march.
    9. Reaños, Miguel Tovar & De Bruin, Kelly & Meier, David & Yakut, Aykut Mert, 2022. "Economic and Distributional Impacts of turning the Value-Added Tax into a Carbon Tax," Papers WP739, Economic and Social Research Institute (ESRI).
    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. Lyudmila P. Koroleva, 2020. "Impact of Value Added Tax on Macro-Economic Parameters of the Russian Economy," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 6(1), pages 22-35.
    12. 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).
    13. Kristina Stefanova, 2024. "Public Sector Impact on Income Inequality in CEE Countries," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 78-97.
    14. David Madden & Michael Savage, 2020. "Which households matter most? Capturing equity considerations in tax reform via generalised social marginal welfare weights," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(1), pages 153-193, February.
    15. Wasiu Adekunle Are, 2012. "Poverty-Reducing Directions of Indirect Marginal Tax Reforms in Ireland," Working Papers 201230, School of Economics, University College Dublin.
    16. McQuinn, Kieran & Foley, Daniel & Kelly, Elish, 2016. "Quarterly Economic Commentary, Winter 2016," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20164, march.
    17. Keane, Claire & Callan, Tim & Savage, Michael & Walsh, John R. & Colgan, Brian, 2014. "Distributional Impact of Tax, Welfare and Public Service Pay Policies: Budget 2015 and Budgets 2009-2015," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    18. Alastair Thomas, 2022. "Reassessing the regressivity of the VAT," Fiscal Studies, John Wiley & Sons, vol. 43(1), pages 23-38, March.
    19. 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.
    20. Robert Hagemann, 2018. "Tax Policies for Inclusive Growth: Prescription versus Practice," OECD Economic Policy Papers 24, OECD Publishing.
    21. Valentinova Tasseva, Iva & De Agostini, Paola & Paulus, Alari & Sutherland, Holly, 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.
    22. 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.
    23. Thomas, Alastair, 2015. "The Distributional Effects of Consumption Taxes in New Zealand," Working Paper Series 19331, Victoria University of Wellington, Chair in Public Finance.

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