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

Author

Listed:
  • Artur Åšwistak

    (International Monetary Fund, Fiscal Affairs Department, Washington, DC, USA)

  • Sebastian Wawrzak

    (Warsaw School of Economics, Warsaw, Poland)

  • Agnieszka AliÅ„ska

    (Warsaw School of Economics, Warsaw, Poland)

Abstract

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.

Suggested Citation

  • Artur Åšwistak & Sebastian Wawrzak & Agnieszka AliÅ„ska, 2015. "In pursuit of tax equity: lessons from VAT rate structure adjustment in Poland," Financial Theory and Practice, Institute of Public Finance, vol. 39(2), pages 115-137.
    • Handle: RePEc:ipf:finteo:v:39:y:2015:i:2:p:115-137
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    References listed on IDEAS

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    More about this item

    Keywords

    value added tax; household consumption; income distribution; tax progressivity; VAT reduced rates; Polish tax reform experience;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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