Taking from the Disadvantaged? Consumption Tax Induced Poverty across Household Types in Eleven OECD Countries

Abstract

Consumption taxes are a policy tool that shape the income distribution and potentially thwart the redistributive goals of social policy. Different household types might be affected differently due to diverging income positions and consumption levels. This study examines the change in poverty across household types when accounting for consumption tax payments. To this end, the study draws on harmonised data from eleven OECD countries in the Luxembourg Income Study (LIS). Implicit indirect tax rates are estimated from national accounts and poverty rates before and after subtracting consumption taxes are investigated. The results indicate significant variation across household types. In most countries, large family and single parent households experience the highest poverty increase. Ultimately, the increase in poverty across countries is positively associated with the consumption tax level.