In pursuit of tax equity: lessons from VAT rate structure adjustment in Poland

In 2011, in the aftermath of the economic crisis, Poland increased its value added tax rates. Despite an already large VAT policy gap, further rate differentiation was used to address distributional concerns and to protect the most vulnerable households. We find that the changes to the VAT rate stru...

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Bibliographic Details
Published inFinancial theory and practice Vol. 39; no. 2; pp. 115 - 137
Main Authors Świstak, Artur, Wawrzak, Sebastian, Alińska, Agnieszka
Format Journal Article Paper
LanguageEnglish
Published Institut za javne financije 01.06.2015
Institute of Public Finance
Subjects
Fiscal equity
Fiscal policy
Food products
household consumption
Household expenditure
income distribution
Poland
Polish tax reform experience
tax progressivity
Tax systems
Taxation
value added tax
value added tax; household consumption; income distribution; tax progressivity; VAT reduced rates; Polish tax reform experience
Value-added taxes
VAT reduced rates
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Summary:In 2011, in the aftermath of the economic crisis, Poland increased its value added tax rates. Despite an already large VAT policy gap, further rate differentiation was used to address distributional concerns and to protect the most vulnerable households. We find that the changes to the VAT rate structure hardly improved the overall progressivity of the VAT and the tax system as a whole. While providing only minimal relief to the poor, taxation of food products at a super reduced rate greatly subsidized the richer households. With a small change to the income tax structure, the government could have secured more progressivity at a lower cost in terms of revenue foregone.
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ISSN:1846-887X
1845-9757
1845-9757
DOI:10.3326/fintp.39.2.1