Fiscal Costs and Redistributive Effects of Reduced VAT Rates in the EU A Detailed Analysis by Product and Population Groups

Mattia Ricci, Áron Kiss and Kristine Van Herck

No 244, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This paper assesses the fiscal costs and redistributive effects of reduced VAT rates across product categories in the EU. The analysis reveals that reduced rates on essential goods, such as food and beverages, housing, water and electricity, and health-related products are the most cost-effective in achieving redistribution. Others, such as restaurants and accommodation, offer limited redistributive returns at best, while being fiscally costly. The findings show a degree of cross-country heterogeneity caused by different spending patterns across countries. Certain groups, in particular pension-age, female-headed, and rural households, benefit disproportionately from reduced VAT rates due to their consumption patterns. Overall, the findings suggest that better targeting of reduced VAT rates could enhance both their equity and fiscal revenues.

JEL-codes: H23 H24 H25 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2026-04
New Economics Papers: this item is included in nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:euf:dispap:244

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