NERI Seminar: Budget Changes in VAT Excise and Levies: Who Pays?

10 September 2014, 3:55pm - 5:15pm


Budget Changes in VAT, Excise & Levies: who pays? An Income Distribution Analysis


Dr Micheál Collins (NERI)


Changes to indirect taxes are a regular feature of annual Budgets. Despite this, the distributive impact of these changes are rarely considered – something that is in contrast to accompanying Budget changes to direct taxes or transfers.

This paper estimates the distributive impact of possible Budget changes to five key areas of indirect taxation: VAT, fuel excises, insurance levies, tobacco excises and alcohol excises. In doing so the paper examines how these changes impact across the income distribution alongside estimating the average household cost/gain and the full year exchequer revenue effect.

The changes examined are as follows:

(i)              VAT:1% increase in the standard rate (23%); 1% increase in the reduced rate (13.5%); and a 1% increase in the second reduced rate (9%).

(ii)            Fuel: 5c increase in a litre of petrol; and a 5c increase in a litre of diesel.

(iii)           Insurance levies: 1% increase in non-life insurance levies.

(iv)           Tobacco: 10c increase in a pack of 20 cigarettes.

(v)             Alcohol: 25c increase in a bottle of wine; 10c increase in a pint of Beer/Cider; and a 10c increase in a standard measure of spirits.

While the paper models increases to each of these indirect taxes, a similar (inverse) distributive impact emerges when reductions to these taxes are examined. The paper also includes tests on the reliability of the estimates using comparisons with the overall VAT yield and Department of Finance estimates on the full-year revenue effects of these changes. Similarly, the reliability of the Household Budget Survey expenditure data on tobacco and alcohol is considered; the former is found to be representative of overall consumption while the latter is problematic; a finding reflected in the papers considerations of the alcohol excise estimates.

An NERI working paper with the findings of this research will be distributed at the seminar:

Collins, M.L. (2014), ‘Modelling the Distributive Impact of Indirect Taxation Changes in the Republic of Ireland’ NERI Working Paper, 2014/20. Dublin, NERI.



Tea and coffee from 15:50. The seminar will commence at 16:00.


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