The Impact of Public Perceptions on General Consumption Taxes

(2020) British Tax Review 67/5, 637-669

33 Pages Posted:

See all articles by Rita de la Feria

Rita de la Feria

University of Leeds

Michael Walpole

UNSW Australia Business School, School of Taxation and Business Law, & ATAX; OCBT; Monash University, Taxation Law and Policy Research Institute

Date Written: December 4, 2020

Abstract

The traditional view as regards general consumption taxes is that excluding certain products from the base decreases their natural regressivity. Whilst this view has been consistently questioned over the last forty years, public perceptions are still heavily influenced by it. Drawing insights from the legislative history of the old European VAT system and the newer Australian VAT system, this paper demonstrates how policy debates and changes in VAT rates have been heavily influenced by those public perceptions; and how special interest groups, which would be set to lose out from broad base VATs, are able to use the information asymmetry behind those perceptions to defend their interest in favour of base narrowing, or against base broadening reforms. The paper presents a novel analytical and conceptual framework – informed by tax law, political economy, political science, behavioural science, and regulatory theory – of the likely factors behind the prevalence of those public perceptions. It demonstrates how, in the absence of external pressures, they result in increased use of reduced rates over time, and the consequent narrowing of the tax base. It concludes by presenting a new pathway to shift public perceptions, and to overcome the political resistance to broad based consumption taxes.

This material was first published by Thomson Reuters, trading as Sweet & Maxwell, 5 Canada Square,Canary Wharf, London, E14 5AQ, in the British Tax Review, and is reproduced by agreement with the publishers.

Keywords: Tax policy, political economy, VAT

Suggested Citation

de la Feria, Rita and Walpole, Michael, The Impact of Public Perceptions on General Consumption Taxes (December 4, 2020). (2020) British Tax Review 67/5, 637-669, Available at SSRN: https://ssrn.com/abstract=

Rita De la Feria (Contact Author)

University of Leeds ( email )

School of Law
Liberty Building
Leeds, LS2 9JT
United Kingdom

Michael Walpole

UNSW Australia Business School, School of Taxation and Business Law, & ATAX ( email )

Sydney, NSW 2052
Australia
+61 2 93859526 (Phone)

OCBT ( email )

Saïd Business School
Park End Street
Oxford, OX1 1HP
United Kingdom

Monash University, Taxation Law and Policy Research Institute ( email )

Caulfield Campus
Sir John Monash Drive
Caulfield East, Victoria 3084
Australia

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