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Economic Effects of VAT Reform in Germany


  • Boeters, Stefan
  • Böhringer, Christoph
  • Büttner, Thiess
  • Kraus, Margit


In the tax policy debate, differentiation of value-added taxes is often justified by distributional concerns. Our quantitative analysis for Germany indicates that such concerns are misplaced. We find that the abolition of VAT differentiation has only negligible redistributive effects. Instead, reduced VAT are found to act as industry-specific subsidies. Whereas the overall welfare effects of pure VAT reforms are very small, a revenue-neutral introduction of a harmonised VAT combined with reductions in the marginal income tax rates or social security contributions turns out to produce substantial welfare gains for all households.

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  • Boeters, Stefan & Böhringer, Christoph & Büttner, Thiess & Kraus, Margit, 2006. "Economic Effects of VAT Reform in Germany," ZEW Discussion Papers 06-030, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:4614

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    References listed on IDEAS

    1. Peter B. Dixon & Maureen T. Rimmer, 1999. "Changes in Indirect Taxes in Australia: A Dynamic General Equilibrium Analysis," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 32(4), pages 327-348.
    2. de Mooij, Ruud A & Ederveen, Sjef, 2003. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(6), pages 673-693, November.
    3. Gottfried, Peter & Wiegard, Wolfgang, 1991. "Exemption versus zero rating : A hidden problem of VAT," Journal of Public Economics, Elsevier, vol. 46(3), pages 307-328, December.
    4. Christoph Böhringer & Andreas Lange, 2005. "Economic Implications of Alternative Allocation Schemes for Emission Allowances," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(3), pages 563-581, September.
    5. Keen, Michael & Mintz, Jack, 2004. "The optimal threshold for a value-added tax," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 559-576, March.
    6. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-226, May.
    7. Turid Åvitsland & Jørgen Aasness, 2004. "Combining CGE and microsimulation models: Effects on equality of VAT reforms," Discussion Papers 392, Statistics Norway, Research Department.
    8. Koskela, Erkki & Vilmunen, Jouko, 1996. "Tax progression is good for employment in popular models of trade union behaviour," Labour Economics, Elsevier, vol. 3(1), pages 65-80, August.
    9. Bob Hamilton & John Whalley, 1989. "Reforming Indirect Taxes in Canada: Some General Equilibrium Estimates," Canadian Journal of Economics, Canadian Economics Association, vol. 22(3), pages 561-575, August.
    10. Boeters, Stefan & Böhringer, Christoph & Feil, Michael, 2002. "Taxation and unemployment: an applied general equilibrium approach for Germany," ZEW Discussion Papers 02-39, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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    Cited by:

    1. Wagner, Franz W. & Weber, Stefan & Gegenwarth, Lisa, 2014. "Wird die Umsatzsteuer überwälzt? Eine empirische Studie der Preispolitik im deutschen Hotelgewerbe," arqus Discussion Papers in Quantitative Tax Research 179, arqus - Arbeitskreis Quantitative Steuerlehre.
    2. Stefan Boeters & Luc Savard, 2011. "The Labour Market in CGE Models," Cahiers de recherche 11-20, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke.
    3. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2010. "Chancen für einen stabilen Aufschwung. Jahresgutachten 2010/11," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201011.
    4. Benjamin Carton, 2012. "Tax Reform and Coordination in a Currency Union," International Economics, CEPII research center, issue 132, pages 141-158.
    5. Lars-H. R. Siemers, 2014. "A General Microsimulation Model for the EU VAT with a specific Application to Germany," International Journal of Microsimulation, International Microsimulation Association, vol. 7(2), pages 40-93.
    6. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers 28, Directorate General Taxation and Customs Union, European Commission.
    7. Denise VAN REGEMORTER & Bert SAVEYN, "undated". "Environmental Policy in a Federal State: A Regional CGE Analysis of the NEC Directive in Belgium," Regional and Urban Modeling 284100045, EcoMod.
    8. CPB Netherlands & CAPP, 2013. "Study on the Impacts of Fiscal Devaluation," Taxation Papers 36, Directorate General Taxation and Customs Union, European Commission.
    9. Nina Hetzer & Andreas Peichl, 2010. "Steuerstrukturreform trotz leerer Kassen?!," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 63(01), pages 28-35, January.
    10. Levin, Jörgen & Sayeed, Yeasmin, 2014. "Welfare impact of broadening VAT by exempting local food markets: The case of Bangladesh," Working Papers 2014:7, Örebro University, School of Business.
    11. Álvarez-Martínez, María Teresa & Polo, Clemente, 2012. "A general equilibrium assessment of external and domestic shocks in Spain," Economic Modelling, Elsevier, vol. 29(6), pages 2486-2493.
    12. repec:pjm:journl:v:xxi:y:2016:i:2:p:79-99 is not listed on IDEAS
    13. Boeters, Stefan & Savard, Luc, 2013. "The Labor Market in Computable General Equilibrium Models," Handbook of Computable General Equilibrium Modeling, Elsevier.

    More about this item


    VAT; tax reforms; distribution; efficiency; applied general equilibrium;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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