Fiscal Costs and Redistributive Effects of Reduced VAT Rates in the EU: A Detailed Analysis by Product and Population Groups

This paper assesses the fiscal costs and redistributive effects of reduced VAT rates in the EU.

Highlights

• Reduced rates on food and beverages, housing, water and electricity, and health-related products are the most cost-effective in achieving redistribution.
• Reduced rates on other goods and services, such as restaurants and accommodation, offer limited redistributive returns at best, while being fiscally costly.
• Pension-age, female-headed, and rural households benefit disproportionately from reduced VAT rates due to their consumption patterns.

Information and identifiers

Discussion Paper 244. April 2026. Brussels. PDF. 34pp. Tab. Graph. Bibliogr. Free.

KC-01-25-067-EN-N (online)
ISBN 978-92-68-31839-3 (online)  
ISSN 2443-8022 (online)
doi:10.2765/6543511 (online)

JEL classification: H23, H24, H25.

Disclaimer

European Economy Discussion Papers are written by the staff of the European Commission’s Directorate-General for Economic and Financial Affairs, or by experts working in association with them, to inform discussion on economic policy and to stimulate debate. The views expressed in this document are solely those of the author(s) and do not necessarily represent the official views of the European Commission.