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The Impact of VAT Changes on the Households´ Real Incomes

  • Libor Dušek
  • Petr Janský

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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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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  1. 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.
  2. 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.
  3. 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.
  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. Timothy J. Besley & Harvey S. Rosen, 1998. "Sales Taxes and Prices: An Empirical Analysis," NBER Working Papers 6667, National Bureau of Economic Research, Inc.
  6. 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.
  7. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
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