Effects of Reducing the Value Added Tax Rate on Food in Latvia

摘要

The present research analyses the effects of reducing the value added tax (VAT) rate for food groups from 21% to 12% on the national economy using interdisciplinary approach. A quantitative analysis was performed by using systemic approach and computer modelling tool developed for assessing the impact of VAT rate changes in the case of limited data availability. During the research, information science has been used, to retrieve data and manage process as well as to determine the VAT rate reduction impact on different economic performance indicators. The authors analysed the effects of reducing the VAT rate on 14 food groups. The effects on food consumption prices, food consumption quantities, value added tax revenues in the government budget, consumers' and producers' gains, as well as inflation were assessed. According to the calculation result, reducing the VAT rate decreases the retail price level of food, although the expected price decrease is not proportional to the VAT rate reduction. Reducing the VAT rate slightly increases the consumption of food. At the same time, reducing the VAT rate decreases VAT revenues in the government budget, while the society's total gain slightly exceeds this decrease.