The Distributional Impact of Ireland's Indirect Tax System

The purpose of the study is to explore how VAT and excise duties are distributed across households with differing levels of income. Using information on consumption patterns from the Household Budget Survey and information on tax rates from the Revenue Commissioners, we estimate the amount of indirect taxes paid by households. The main finding is that indirect taxes account for a larger proportion of total household spending at the lower end of the income distribution. This is in spite of the exemption of food from VAT. The relatively high level of tax on alcohol and tobacco can explain much of this finding and this places a constraint on any effort to reduce the regressivity of the indirect tax system. Hence, there is a need to ensure that other elements in the tax system are used to counteract this regressivity.