Increase in VAT would affect households in different income categories roughly equally
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An increase in VAT in Germany in the near future cannot be precluded. If the reduced rate remains unchanged, the regressive redistribution effects in the income categories considered here are minor. Rather, an increase in VAT would affect the households of differing income categories virtually equally: the DIW came to the same conclusion as long as 20 years ago. A less pronounced additional burden would only result for households above the income ceiling chosen here of around DM 8 400 (west Germany) and DM 5 200 (east Germany). At the same time any increase in VAT as a proportion of overall fiscal receipts reduces the redistributional effect in favour of low-income households that results, in particular, from the progressive incidence of income tax rates.
KeywordsEconomic Policy Income Category Additional Burden Redistribution Effect Income Ceiling
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