Rising Inequality of Western Tax Systems: Austria as Example of the Transformation of Income based Tax into a Consumption based Tax

17 Pages Posted: 20 Jul 2022

Date Written: July 8, 2022

Abstract

Most tax systems in the European Union are basically designed as a mixed system concerning the tax base, so also in Austria. It is in many ways a hybrid between an income-based and a consumption-based system. The Austrian tax system, together with many other western tax systems, is moving increasingly towards a consumption-based tax system. International tax competition – along with social change – has contributed to increased consumption-oriented elements in our tax system. This trend has many different manifestations: the shift in tax burdens from direct income taxes to indirect consumption taxes (especially to VAT), the cut of corporate income tax rates, and the implementation of dual income tax elements with reduced rates for capital or invested income. When making such changes, the effects that increased consumption orientation has on the tax system and, in particular, the distribution of the tax burden in society, must be taken into account. This article focuses on how Austrian tax system, as an example for many other western tax systems, is moving towards consumption as a base of taxation before examining the possibility of wealth accumulation and the resulting inequality of distribution.

Keywords: consumption orientation, inequality, ability-to-pay principle, consumption

JEL Classification: K34

Suggested Citation

Anderwald, Anna-Maria, Rising Inequality of Western Tax Systems: Austria as Example of the Transformation of Income based Tax into a Consumption based Tax (July 8, 2022). Available at SSRN: https://ssrn.com/abstract=4157677 or http://dx.doi.org/10.2139/ssrn.4157677

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