Tax Fairness – Reduced rates and exemptions are not an effective way of supporting low-income households

What the EU Gets Wrong About “Tax Fairness” and How Principled Tax Policy Can Help

Another example is value-added tax carveouts for certain products. The EU Parliament believes reduced rates on essential goods will “benefit low-income households and, as such, tackle the regressiveness of the VAT system,” as well as mitigate future exceptional circumstances like pandemics, humanitarian crises, or natural disasters.

However, recent research shows that reduced rates and exemptions are not an effective way of supporting low-income households and could even increase the regressivity of the system if, to achieve revenue goals, the general VAT rates are increased. In other words, these carveouts make the EU’s VAT system less equitable.

Source Tax Foundation

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