| Popis: |
Indirect taxes are used by many countries around the world as an instrument, together with direct social transfers, for supporting the incomes of the needy. This often takes the form of reduced rates of the value-added tax (VAT) on certain products such as food. In principle, since not only the needy benefit from the reduced rates, but also the rest of the population, reduced rates are supposed to be less effective for distributive objectives than direct cash transfers. In this paper, we ask whether reduced value-added tax (VAT) rates or larger amount or coverage of child benefit is more effective as a means to achieve better distributive objectives. In the context of Croatia, we simulate the distributive impact of reforms that include abandoning of reduced VAT rates on food and increasing the amount or coverage of child benefit. Using a detailed tax- benefit microsimulation model and the survey data from the EU-SILC and the Household Budget Survey, we find, in line with studies for other countries, that reduced VAT is indeed a less effective instrument than child benefit, a better targeted instrument. |
