Redistributional role of value added tax in Lithuania

Viginta Ivaškaitė-Tamošiūnė

Abstract


This article analyses the redistributive function of value added tax (VAT) in Lithuania. Firstly, the differences in savings and expenditure structures of richer and poorer households are evaluated. Also, patterns of expenditures subject to different VAT rates, by groups of goods and services, in households from different income deciles are analysed. This article evaluates the effect of VAT in general and different VAT rates on income distribution and income inequality in Lithuania. The conclusion is that VAT is a regressive tax and increases income inequality. However, lower VAT rates applied to the food products or heating, which forms a bigger share of expenditure of lower income households, can perform a social redistributive function. During economic crisis, because of the changes in VAT legislation, social justice has lowered and the tax burden has increased, especially for the households at the lower end of the income distribution.

Keywords


value added tax; income redistribution; income inequality; VAT rates; regressive tax

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DOI: http://dx.doi.org/10.13165/VSE-14-4-1-03

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"Business Systems & Economics" ISSN online 2029-8234