Consumption taxes, a key component of fiscal policy, play a crucial role in today's global economy, influencing consumer behaviour, economic growth, and their role in shaping sustainable economic development.
Consumption taxes, part of indirect taxes, are levied on the purchase of goods and services. Unlike direct taxes, such as income taxes, which are paid by individuals or corporations directly to the state, consumption taxes are collected by businesses on behalf of the government. These taxes play a crucial role in generating revenue for member states and contribute to financing public services and infrastructure. At the same time, consumption taxation bears important redistributive implications for poorer households tend to consume a larger proportion of their income than richer ones.
The European Union has implemented a harmonized system of Value-Added Tax (VAT), which is applied to all member states. The VAT is a consumption tax that is charged at each stage of production and distribution, ultimately passed on to the final consumer. Excise duties on Alcohol, Tobacco and Energy are also harmonized and subject to minimum rates established in specific directives.
Indirect Tax Tool
The Indirect Tax Tool (ITT) extends the scope of EUROMOD simulations, allowing for the simulation of consumption taxes, inflation analysis and price-side measures.
Tax reforms on VAT and Excises
Consumption taxes are a crucial revenue source for EU governments and an effective tool to promote healthier and sustainable choices. Our unit analyzes and supports evidence-based policy to ensure fairness and effectiveness in tax systems.
Distributional impact of energy price measures
We assess the fiscal and distributional impacts of policy interventions, introduced in many EU countries from 2022 onward, in mitigating the effects of energy price hikes.
