What is the Potential Impact of a Uniform VAT Rate in Spain, if Implemented in a Revenue Neutral Way?

Abstract

This paper analyses a revenue neutral reform of the Spanish tax system. Differentiated VAT rates on all products except alcoholic beverages and tobacco would be eliminated and replaced by a single uniform rate of tax. This could lead to substantial efficiency gains by reducing distortions in consumption and production decisions, as well as administrative and compliance costs. The current system also has the peculiarity of being slightly regressive, meaning that unlike most other similar reforms, this one would also lead to gains in terms of equity.