Designing a Progressive VAT

Artur Swistak and Rita de la Feria

No 2024/078, IMF Working Papers from International Monetary Fund

Abstract: This paper presents a novel approach to addressing VAT regressivity, by proposing the adoption of a progressive VAT: a single-rate, broad-base, VAT, whereby tax paid on consumption is re-paid to lower income households in real-time, at the moment of purchase. Such a system can effectively eliminate regressivity, while minimizing the political economy, cash-flow, and welfare stigma obstacles that are often associated with standard welfare transfers used in modern VAT systems. It would also have other significant advantages, particularly in terms of compliance incentives.

Keywords: VAT incidence; VAT design; la Feria; stigma obstacle; VAT system; Value-added tax; Consumption taxes; Consumption; Income; Income distribution; Global (search for similar items in EconPapers)
Pages: 31
Date: 2024-04-05
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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