What drives consumption tax revenues?: Disentangling policy and macroeconomic drivers
Hannah Simon and
Michelle Harding
No 47, OECD Taxation Working Papers from OECD Publishing
Abstract:
This paper decomposes consumption tax revenues in OECD countries into the implicit tax rate (ITR) and consumption relative to GDP, to identify how economic downturns affect consumption tax revenues. It further considers the impact of changes in VAT efficiency and VAT rates on ITRs. The analysis finds that the observed stability in consumption tax revenues results from offsetting changes in the ITRs and in consumption as a share of GDP, arising from both macroeconomic changes and intentional policy changes. During the economic crisis in 2007-2009, lasting changes in consumption patterns, notably increases in government spending and in private consumption of necessity goods, adversely affected the efficiency of VAT systems. These changes have not since been reversed, suggesting that consumption tax revenues are now less robust to economic shocks. Broadening the VAT base and narrowing the scope of reduced rates can help to stabilise consumption tax revenues during economic downturns.
Keywords: Consumption Taxes; Economic crisis; Implicit Tax Rates; Macroeconomic changes; Tax Revenue Stability; Tax Revenues; Value-Added Tax; VAT efficiency (search for similar items in EconPapers)
JEL-codes: H24 H29 (search for similar items in EconPapers)
Date: 2020-04-02
New Economics Papers: this item is included in nep-pbe and nep-pub
References: Add references at CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
https://doi.org/10.1787/94ed8187-en (text/html)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:oec:ctpaaa:47-en
Access Statistics for this paper
More papers in OECD Taxation Working Papers from OECD Publishing Contact information at EDIRC.
Bibliographic data for series maintained by ().