Economic effects of VAT reforms in Germany

Stefan Boeters, Christoph Bohringer, Thiess Büttner and Margit Kraus

Applied Economics, 2010, vol. 42, issue 17, 2165-2182

Abstract: In the tax policy debate, differentiation of value-added taxes (VAT) 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 rates 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 harmonized VAT combined with reductions in the marginal income tax rates or social security contributions turns out to yield substantial welfare gains for all households.

Date: 2010
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Working Paper: Economic Effects of VAT Reform in Germany (2006)
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DOI: 10.1080/00036840701857952

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