Addressing vat regressivity

Abordado el carácter regresivo del IVA

Abstract

General consumption taxes, like value added tax (VAT), are commonly regarded as regressive. The traditional response to concerns over this regressivity has been the exclusion of certain products from full taxation —either through the use of reduced rates or exemptions— on the presumption that this exclusion will achieve social and distributional aims. This approach continues to heavily influence policy, with both multiple rates and exemptions still widely used worldwide. Yet, over the last decades, an overwhelming body of legal and economic evidence has built up against the use of exclusions from the base. This aim of this article is to contribute to this discussion, by presenting the arguments in favour of broad-based VATs. It concludes that narrow VAT bases are not the result of equity or efficiency considerations, but rather of the political ones, and only by addressing those can VAT design by improved upon.