Original scientific paper

https://doi.org/10.3935/rsp.v29i2.1953

Distributive Effects of the Abolition of 'Socially Motivated' Reduced Vat Rates in Order to Increase Generosity and Scope of the Targetted Transfers: Microsimulational Analysis for Croatia

Ivica Rubil orcid.org/0000-0002-9111-7313 ; The Institute of Economics, Zagreb, Croatia

Abstract

Many countries, including Croatia, support households in need not only through social transfers, but also through 'socially motivated' reduced VAT rates for goods such as food. These measures are also useful to those who are richer, so the question arises whether it is more desirable to increase social benefits that target low-income households. This paper analyses distributive effects of a hypothetical reform of the Croatian system of taxation and transfers which includes: (a) abolition of socially motivated reduced VAT rates; (b) increase of generosity and the number of the users of guaranteed minimum benefit and the users of allowance for vulnerable energy buyers. The reform is designed to be virtually neutral fiscally in the sense that almost all additional VAT is spent on the increase of guaranteed minimum benefit and allowance for vulnerable energy buyers. Results of the analysis conducted by a detailed microsimulational model of taxation and transfers that uses the data from EU-SILC and the Survey on household consumption show that the reform reduces poverty and inequality based on income after taxation and transfers, in spite of the increase of the regressivity of VAT and the decrease of the progressivity of the guaranteed minimum benefit and allowance for vulnerable energy buyers.

Keywords

VAT; social benefits; microsimulations; inequalities; poverty; reform

Hrčak ID:

285530

URI

https://hrcak.srce.hr/285530

Publication date:

27.10.2022.

Article data in other languages: croatian

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