Friday, March 27, 2020
Rita de la Feria (University of Leeds) presents The Impact of Public Perceptions on VAT Rates Policy (with Michael Walpole (University of New South Wales)) online at Indiana today as part of its Tax Policy Colloquium Series hosted by Leandra Lederman:
The traditional view in VAT is that excluding certain products from its base decreases the natural regressivity of the tax. Whilst this traditionally view has been consistently put into question over the last thirty years by economic and legal evidence, public perceptions are still heavily influenced by it. Using the old European VAT system and the newer Australian VAT system as case studies we demonstrate how policy debates and changes as regards VAT rates have been heavily influenced by those public perceptions, against the evidence, and how industry groups, which would be set to lose out from specific policies, are able to use the information asymmetry subjacent to those perceptions to defend their interest in favour or against reform.
The paper considers the likely factors behind the prevalence of those public perceptions, and demonstrates how, in the absence of external pressures, they result in increased use of reduced rates over time, and the consequent narrowing down of the VAT base.