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Medium-Term Effects of a Rise in VAT on Standard of Living and Inequality: a Microsimulation Approach
[Effets de moyen terme d’une hausse de TVA sur le niveau de vie et les inégalités : une approche par microsimulation]

Author

Listed:
  • Mathias André

    (INSEE - Institut national de la statistique et des études économiques (INSEE))

  • Anne-Lise Biotteau

    (INSEE - Institut national de la statistique et des études économiques (INSEE))

Abstract

A rise in VAT has both direct and delayed effects on standard of living and inequality. Such a rise translates into an increase in prices that same year. Earnings and other types of income are partly adjusted subsequently. The scales for social security benefits and direct taxes are also index-linked to inflation. This work offers an ex-ante evaluation of these mechanisms using the Ines microsimulation model. Three years after a three-point rise in the standard rate of VAT, the standard of living, adjusted for VAT and spending on rent, would be 0.6% lower in real terms, on average, than if there had been no rise. This delayed effect equates to 45% of the initial effect. The poorest 10% of people suffer a relative fall in their adjusted standard of living three times greater than the rest of the population.

Suggested Citation

  • Mathias André & Anne-Lise Biotteau, 2021. "Medium-Term Effects of a Rise in VAT on Standard of Living and Inequality: a Microsimulation Approach [Effets de moyen terme d’une hausse de TVA sur le niveau de vie et les inégalités : une approch," Post-Print hal-05241375, HAL.
    • Handle: RePEc:hal:journl:hal-05241375
    DOI: 10.24187/ecostat.2021.522d.2037
    Note: View the original document on HAL open archive server: https://insee.hal.science/hal-05241375v1
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