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A Review of Studies on the Distributional Impact of Consumption Taxes in OECD Countries

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  • Neil Warren

Abstract

Consumption taxes are only rarely assessed for their impact on the economic well-being of individuals. This paper reviews various studies on this issue. It first describes the large differences in the size and structure of these taxes among OECD countries, and then reviews the types of assumptions that are typically made when estimating the redistributive impact of these taxes. Based on this review, the paper advocates the wider adoption of the methodology that is currently adopted by government statisticians in Australia, Canada and the United Kingdom – based on input-output tables and on the modelling of a large part of the consumption taxes levied on various types of final expenditures and production inputs. The paper argues that, beyond methodological differences, all studies agree that consumption taxes have a significant regressive impact on the distribution of household disposable income. Illustrative simulations – based on applying the detailed findings on the incidence of consumption tax in one country (Australia) to the tax structure and income distribution of other OECD countries suggests that omission of consumption taxes affects estimates of the overall size of the redistribution achieved through the tax system and of how this differ across countries and evolves over time. Les impôts à la consommation sont rarement évalués pour leur incidence sur le bien-être économique des individus. Ce document se penche sur cette question. D’abord, il présente les grandes différences dans la taille et la structure de ces impôts dans les pays de l’OCDE. Puis, il examine les hypothèses qui sont typiquement faites pour estimer leur impact redistributif. Sur la base de cet examen, le document prône l’adoption plus large de la méthodologie actuellement adoptée par la Statistique publique en Australie, au Canada et au Royaume-Uni – une méthodologie basée sur des tableaux entrées-sorties et qui considère la plus grande partie des impôts à la consommation prélevés tant sur les dépenses finales que sur les facteurs de production. Le document montre qu’au-delà des différences méthodologiques, toutes les études conviennent que les impôts sur la consommation ont une incidence régressive significative sur la distribution du revenu disponible des ménages. Des simulations indicatives – basées sur l’application des résultats sur l’incidence des impôts à la consommation dans un pays (l’Australie) sur la structure des impôts et la distribution du revenu des autres pays de l’OCDE – montrent que d’ignorer ces impôts affecte toutes mesures de redistribution opérée par le système fiscal et que ces effets varient d’un pays à l’autre et dans le temps.

Suggested Citation

  • Neil Warren, 2008. "A Review of Studies on the Distributional Impact of Consumption Taxes in OECD Countries," OECD Social, Employment and Migration Working Papers 64, OECD Publishing.
  • Handle: RePEc:oec:elsaab:64-en
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    File URL: http://dx.doi.org/10.1787/241103736767
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    Cited by:

    1. Thomas, Alastair, 2015. "The Distributional Effects of Consumption Taxes in New Zealand," Working Paper Series 4668, Victoria University of Wellington, Chair in Public Finance.
    2. Arsić, Milojko & Altiparmakov, Nikola, 2013. "Equity aspects of VAT in emerging European countries: A case study of Serbia," Economic Systems, Elsevier, vol. 37(2), pages 171-186.
    3. Michael Förster & Peter Whiteford, 2009. "How much Redistribution do Welfare States Achieve? The Role of Cash Transfers and Household Taxes," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 7(3), pages 34-41, October.
    4. André Decoster & Jason Loughrey & Cathal O'Donoghue & Dirk Verwerft, 2010. "How regressive are indirect taxes? A microsimulation analysis for five European countries," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 29(2), pages 326-350.

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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