Shifting the tax burden from labour income to consumption

Making taxes less distortionary by shifting taxation from more mobile to less mobile tax bases and by broadening the tax base, while reducing rates, is a way to improve economic performance. Consumption taxes are the main candidate to implement a tax shift from labour taxation. Due to the broad base of the VAT, an increase in its tax rate is usually considered as a crucial ingredient of such a tax reform. The aim of this paper is explore on the theoretical ground the main channels by which the effects of a tax shift from consumption to taxation can take place.