- The debate centres on the OECD Taxation Working Paper No. 49, “Reassessing the regressivity of the VAT” (Alastair Thomas, 2020), which challenges the long-held view that VAT is inherently regressive by drawing on tax microsimulation models built for 27 OECD countries. [oecd.org], [econpapers.repec.org]
- The key methodological insight: when VAT burdens are measured relative to income, VAT looks regressive; but measuring relative to expenditure (removing distortions from savings, per IFS 2011) shows VAT is roughly proportional or even slightly progressive in most countries examined—since income saved will eventually incur VAT when spent. [oecd.org], [taxfoundation.org]
- The paper concludes there is scope to raise revenue by broadening VAT bases with less distributional impact than assumed—hence OECD support for VAT increases. Critics counter that low-income UK households spend nearly all earnings, so higher VAT hits them proportionally harder; the OECD stresses accompanying compensation via targeted credits. [oecd.org], [taxaggrega…portal.org]
Sources: · · [oecd.org] [taxfoundation.org] [taxaggrega…portal.org]
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