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Fiscal Costs and Redistributive Effects of Reduced VAT Rates in the EU A Detailed Analysis by Product and Population Groups

Author

Listed:
  • Mattia Ricci
  • Áron Kiss
  • Kristine Van Herck

Abstract

This paper assesses the fiscal costs and redistributive effects of reduced VAT rates across product categories in the EU. The analysis reveals that reduced rates on essential goods, such as food and beverages, housing, water and electricity, and health-related products are the most cost-effective in achieving redistribution. Others, such as restaurants and accommodation, offer limited redistributive returns at best, while being fiscally costly. The findings show a degree of cross-country heterogeneity caused by different spending patterns across countries. Certain groups, in particular pension-age, female-headed, and rural households, benefit disproportionately from reduced VAT rates due to their consumption patterns. Overall, the findings suggest that better targeting of reduced VAT rates could enhance both their equity and fiscal revenues.

Suggested Citation

  • Mattia Ricci & Áron Kiss & Kristine Van Herck, 2026. "Fiscal Costs and Redistributive Effects of Reduced VAT Rates in the EU A Detailed Analysis by Product and Population Groups," European Economy - Discussion Papers 244, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:dispap:244
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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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