Taxing Fairly or Failing Badly? Reduced VAT Rates and Redistribution

Mattia Ricci () and Federica Lanterna
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Mattia Ricci: European Commission - JRC, https://joint-research-centre.ec.europa.eu/index_en

No 2026-02, JRC Working Papers on Taxation & Structural Reforms from Joint Research Centre

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

Date: 2026-02
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Persistent link: https://EconPapers.repec.org/RePEc:ipt:taxref:202602

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