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Consumption Taxation in the European Economic Community: Fostering the Common Market or Financing the Welfare State?
Author(s) -
Haffert Lukas,
Schulz Daniel F.
Publication year - 2020
Publication title -
jcms: journal of common market studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.54
H-Index - 90
eISSN - 1468-5965
pISSN - 0021-9886
DOI - 10.1111/jcms.12928
Subject(s) - consumption (sociology) , shadow (psychology) , welfare , economics , politics , welfare state , consumption tax , state (computer science) , indirect tax , tax reform , economic policy , public economics , market economy , political science , psychology , social science , algorithm , sociology , computer science , law , psychotherapist
The literature on the comparative political economy of taxation often links consumption taxation to the welfare state. It argues that the expansion of consumption taxation paid for the expansion of welfare states and that bigger welfare states therefore tax consumption more heavily. We challenge this perspective by looking at the introduction of the Value Added Tax (VAT) in the European Economic Community in 1967, the breakthrough of this form of consumption taxation. Studying the crucial case of Germany, and complementing it with the shadow case of the Netherlands, we demonstrate that political struggles about this reform did not center on a conflict between supporters and opponents of welfare state expansion. Instead, the VAT was primarily a tool to foster market integration in Europe by reducing barriers to trade. As we show, the coalition in support of the VAT only succeeded after it won the backing of important export interests.