H22 - Taxation and Subsidies: IncidenceReturn

Inflation rates have traditionally been measured by the percentage change in the price level of a market basket of consumer goods and services purchased by households. The market basket represents the spending patterns of average household. However, households differ in their spending patterns and there are differences in the price changes of various goods and services. Therefore, different households experience different inflation rates. This paper finds that these differences have been significant in the Czech Republic during the period 1995-2010. Only around 60% of households actually experienced an inflation rate that was similar to the national average. Furthermore, the higher the average inflation rate over time, the lower the percentage of households whose inflation rate was similar to that average. The main determiners of inflation were expenditures for housing and energy, food and non-alcoholic drinks. In most years, pensioners and low-income households faced significantly higher inflation rates than the average rate for the whole population.

This paper provides an up-to-date analysis of the redistributive effects of the Czech tax and benefit system at the household level. We provide several measures of the extent in which the tax and benefit system redistributes from the rich to the poor and from the childless households to the households with children. We find a rather weak combined power of the tax and benefit systems in alleviating income inequalities. The system redistributes primarily towards households with children. While households with children earn 55 per cent of total earnings, they pay 39 per cent of total taxes and receive 68 per cent of total benefits. Even the richest households with children contribute a lower share of total net taxes (8 per cent) than their share in total earnings (10 per cent). About a quarter of households with children in the upper income deciles collect some benefits while only half of the poorest households without children do.

The aim of this paper is to analyse progressivity of value added tax in the Czech Republic under the framework of both annual incidence and lifetime incidence. Moreover, impact of the harmonisation of VAT rates connected with the accession of the Czech Republic to the EU on the income distribution is examined. The burden table serves to show the distribution of the VAT burden among households by income categories; the generalised entropy measures and the Gini coefficient are used for measurement of inequality of income. Results show that the Czech VAT is regressive when annual income is analysed while the lifetime income analysis indicated that VAT is progressive. Furthermore, the results suggest that the distribution of income (annual as well as lifetime) after taxation was more equal before the harmonisation, and that impact of the changes in VAT rates in 2004 was likely larger on the lower-income households.