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Institute of Public Finance

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

Artur Świstak, International Monetary Fund, Fiscal Affairs Department, Washington, DC, USA
Sebastian Wawrzak, Warsaw School of Economics, Warsaw, Poland
Agnieszka Alińska, Warsaw School of Economics, Warsaw, 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 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.

Keywords:  value added tax; household consumption; income distribution; tax progressivity; VAT reduced rates; Polish tax reform experience

Year:  2015   |   Volume:  39   |   Issue:  2   |   Pages:  115 - 137   

Full text (PDF)   |   DOI: 10.3326/fintp.39.2.1   |   E-mail this article   |   Download to citation manager
 June, 2015
II / 2015
EBSCO Publishing
ISSN 1846-887X
e-ISSN 1845-9757
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