Taxing Consumption - An Analysis of the Distribution of the VAT Burden in Switzerland

Abstract: This paper investigates the distribution of the tax burden of the value added tax, VAT, in Switzerland. The current Swiss VAT system overall is slightly progressive, putting a higher tax burden on the high-income households. The analysis of different household types yields similar results. The results depend crucially on the measurement base adopted. It is however argued that the tax ratio as a proportion of expenditure pictures the tax burden of households from a lifetime perspective most realistically. A simulation is performed in order to evaluate the impact of a uniform consumption tax rate. While the VAT system would still be somewhat progressive, the reform is regressive, imposing a greater change in tax burden on low-income households.