IDEAS home Printed from https://ideas.repec.org/p/ipt/taxref/202602.html

Taxing Fairly or Failing Badly? Reduced VAT Rates and Redistribution

Author

Listed:

Abstract

The application of reduced VAT rates in the EU generally aims to alleviate the regressivity of consumption taxation. However, while these measures generate redistribution across income groups, they also create redistribution effects within income groups, leading to arbitrary redistribution among households with similar incomes but different consumption patterns. Using the Analysis of Gini (ANOGI) decomposition, we evaluate the redistributive impact of reduced VAT rates across EU Member States. Our results indicate that, while reduced VAT rates lower the regressivity of VAT taxation, their total redistributive effect is modest. That is because the between-group pro-redistributive effect is largely offset by the within-group anti-redistributive one. This analysis highlights the limited effectiveness of reduced VAT rates as a tool for redistribution

Suggested Citation

  • Ricci Mattia & Lanterna Federica, 2026. "Taxing Fairly or Failing Badly? Reduced VAT Rates and Redistribution," JRC Working Papers on Taxation & Structural Reforms 2026-02, Joint Research Centre.
    • Handle: RePEc:ipt:taxref:202602
    as

    Download full text from publisher

    File URL: https://publications.jrc.ec.europa.eu/repository/handle/JRC145036
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Julien Blasco & Elvire Guillaud & Michaël Zemmour, 2023. "The inequality impact of consumption taxes: An international comparison," Post-Print hal-04316442, HAL.
    2. Mookherjee, Dilip & Shorrocks, Anthony F, 1982. "A Decomposition Analysis of the Trend in UK Income Inequality," Economic Journal, Royal Economic Society, vol. 92(368), pages 886-902, December.
    3. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    4. Julien Blasco & Elvire Guillaud & Michaël Zemmour, 2023. "The inequality impact of consumption taxes: An international comparison," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-04316442, HAL.
    5. Francesco Figari & Alari Paulus, 2015. "The Distributional Effects of Taxes and Transfers Under Alternative Income Concepts," Public Finance Review, , vol. 43(3), pages 347-372, May.
    6. Holly Sutherland & Francesco Figari, 2013. "EUROMOD: the European Union tax-benefit microsimulation model," International Journal of Microsimulation, International Microsimulation Association, vol. 1(6), pages 4-26.
    7. Pyatt, Graham, 1976. "On the Interpretation and Disaggregation of Gini Coefficients," Economic Journal, Royal Economic Society, vol. 86(342), pages 243-255, June.
    8. Blasco, Julien & Guillaud, Elvire & Zemmour, Michaël, 2023. "The inequality impact of consumption taxes: An international comparison," Journal of Public Economics, Elsevier, vol. 222(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lanterna, Federica & Ricci, Mattia, 2025. "Taxing fairly or failing badly? Reduced VAT rates and redistribution," Economics Letters, Elsevier, vol. 254(C).
    2. Christl, Michael & De Poli, Silvia & Köppl–Turyna, Monika, 2025. "An extended view on inequality and redistribution in the European Union — The role of indirect taxation and in-kind benefits," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 162-177.
    3. Bratta, Barbara & Carta, Silvia & Di Caro, Paolo & Manzo, Marco & Orecchia, Carlo, 2025. "Welfare and equity impact of consumption tax policies: A micro-macro-economic approach applied to Italy," Economic Systems, Elsevier, vol. 49(3).
    4. Hüseyin Şen & Ayşe Kaya, 2026. "Does a revenue-neutral shift from indirect to direct taxes reduce inequality? Evidence from high-income OECD countries," Empirical Economics, Springer, vol. 70(2), pages 1-48, February.
    5. Sacchidananda Mukherjee, 2025. "Do Taxes on Commodities and Services Bear a Disproportionate Burden in India? An Assessment from 2011–2012 to 2022–2023," Journal of Development Policy and Practice, , vol. 10(2), pages 120-144, May.
    6. Mukherjee, Sacchidananda, 2025. "Distributional Impact of Indian GST based on the NSSO's Household Consumption Expenditure Survey of 2022-23," Working Papers 25/430, National Institute of Public Finance and Policy.
    7. Elena F. Kireeva & Alan K. Karaev, 2025. "Estimation of Fiscal Convergence of the Countries of the Eurasian Economic Union using the Multidimensional Ellipsoid Method," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 24(1), pages 34-58.
    8. Konstantin V. Vekerle & Sergei G. Belev & Sergei G. Sinelnikov-Murylev, 2025. "Progressiveness Assessment of the Value Added Tax in Russia," Population and Economics, ARPHA Platform, vol. 9(4), pages 23-36, October.
    9. Sen, Aariya & Sensarma, Rudra, 2025. "Winners and Losers: The Effects of Monetary Policy on Income and Consumption Inequality," Emerging Markets Review, Elsevier, vol. 68(C).
    10. Branko Milanovic & Shlomo Yitzhak, 2006. "Decomposing World Income Distribution: Does The World Have A Middle Class?," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 2(2), pages 88-110.
    11. Christian Ahlin & Hyeok Jeong, 2021. "A conditional Gini: measure, estimation, and application," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(2), pages 363-384, June.
    12. Jiandong Chen & Dai Dai & Ming Pu & Wenxuan Hou & Qiaobin Feng, 2010. "The trend of the Gini coefficient of China," Global Development Institute Working Paper Series 10910, GDI, The University of Manchester.
    13. Banerjee, Nirajana & Basu, Ritojeet & De, Ananya & Poali, Monalisa, 2020. "Global Inequality in Life Expectancies: What Role Does Income Inequality Play?," SocArXiv q794n, Center for Open Science.
    14. Stéphane Mussard & Françoise Seyte & Michel Terraza, 2006. "La décomposition de l’indicateur de Gini en sous-groupes : une revue de la littérature," Cahiers de recherche 06-11, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    15. John Chiwuzulum Odozi & Ruth Uwaifo Oyelere, 2023. "Evolution of Inequality in Nigeria: a Tale of Falling Inequality, Rising Poverty, and Regional Heterogeneity," Journal of Economics, Race, and Policy, Springer, vol. 6(4), pages 297-309, December.
    16. Allanson, Paul, 2014. "Income stratification and between-group inequality," Economics Letters, Elsevier, vol. 124(2), pages 227-230.
    17. Federico Attili, 2020. "Within-between decomposition of the Gini index: a novel proposal," Working Papers wp1153, Dipartimento Scienze Economiche, Universita' di Bologna.
    18. Luc Savard & Stéphane Mussard, 2005. "Horizontal and Vertical Redistribution and Micro-simulation," Cahiers de recherche 05-03, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    19. Lima, Pedro G. & Teixeira, Pedro N. & Silva, Sandra T., 2021. "Major Streams in the Economics of Inequality: A Qualitative and Quantitative Analysis of the Literature since 1950s," IZA Discussion Papers 14777, IZA Network @ LISER.
    20. Geoffrey Warner, 2001. "A lorenz curve based index of income stratification," The Review of Black Political Economy, Springer;National Economic Association, vol. 28(3), pages 41-57, December.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ipt:taxref:202602. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Publication Officer (email available below). General contact details of provider: https://edirc.repec.org/data/ipjrces.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.