The OECD has published a new working paper, What drives consumption tax revenues? Disentangling policy and macro-economic drivers, which looks to identify how economic downturns affect consumption tax revenues, particularly during the global financial crisis of 2007 – 2009. The report does not consider the implications of the current crisis, however its findings provide insights on how the COVID-19 crisis is likely to affect consumption tax revenues.

The report notes that the VAT rate reductions that were introduced in the financial crisis to spur consumer spending would have limited impacts during the current emergency phase of this crisis. Rather, measures such as deferring VAT payments, should be taken to improve business liquidity. However, in the longer run, consumption tax revenues can help to rebalance government budgets, for which monitoring and understanding the drivers of tax revenue changes will be key.

Read the OECD’s update for more information.