The European VAT Oxymoron: A pragmatic solution for welfare, especially in times of crisis?

VAT is an important but at the same time long neglected issue in social policy literature. The way in which taxes are levied has important implications for citizens in terms of equity and efficiency effects. Rate diversification is embedded in VAT planning across the EU, which enables Member States to address particular welfare objectives and tackle VAT’s regressivity.

Nonetheless, for some, this undermines the uniformity and effectiveness of a pan-European VAT system comprised of the so-called ideal single-rate VAT structure which could bring more money into state budgets and, thus, allow for more generous welfare provision.

This paper evaluates arguments put forward by both sides, concluding that in times of crisis, where governments might advance VAT streamlining purely in order to deal with deficit constraints instead of fairer redistribution, the regime currently in place is the most pragmatic solution from a pro-welfare perspective.