Study
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Gangl, K., Goerg, S., & Biró, T. (2026). Increase VAT—slow down consumption? A study on the acceptance of tax reforms and their potential effects on domestic demand. NIMpulse 19.
2026
Prof. Dr. Sebastian J. Goerg,
Tobias Biró
Increase VAT—Slow Down Consumption?
Background to the study
The economic situation in Germany continues to be characterized by subdued momentum. Private consumption, traditionally a key pillar of domestic demand, has also been weak for some time. Partly due to the Iran war and rising prices, NIM consumer sentiment is currently in decline.
These developments are reflected in current reform debates. A repeatedly proposed idea is to combine tax relief on income with higher taxation of consumption—for example, by increasing VAT. The aim is to strengthen growth while securing government revenues.
This study examines how such a reform could affect people’s consumption behavior. It is based on a representative survey of adults in Germany. With this, NIM aims to contribute to the current economic and tax policy debate and to make the consumer perspective visible.
How is fairness of tax types assessed?
When respondents are asked to choose between income tax and consumption tax without additional information on the distribution of the tax burden (question version a), slightly more people—especially younger adults and higher-income earners—consider consumption taxes fundamentally fairer. Overall, however, respondents are polarized. When the question includes information on the distribution of the tax burden (question version b), responses shift toward income taxation.
How do Germans view the tax reform currently under discussion, and what consequences can be expected?
A VAT increase is currently unpopular. This is true even if income taxes for average earners are sharply reduced in return. Only about one in four respondents approves of the scenario presented here (an income tax cut of €100 per month with additional costs of €40 due to a VAT increase). Opposition is particularly strong among older respondents and low-income earners. However, even those with higher incomes tend to oppose this policy.
The negative evaluation of the described tax reform is accompanied by a pessimistic outlook regarding respondents’ own consumption behavior, should the reform actually take effect. According to more than half of respondents, such a reform would not stimulate consumption but would increase the propensity to save. Only 5% say it would motivate them to consume more.
If a reform like the scenario were implemented, low-income individuals, older respondents, and women in particular would pay more attention to special offers or reduce consumption. The actual negative effects on domestic consumption could be even greater than the figures suggest. One reason is that women still tend to do the weekly grocery shopping in households. Higher-income respondents are less likely to say they would reduce consumption, but they would not be more likely to increase it either.
What should be the government's primary goal when it comes to taxing food?
When it comes to the design of VAT rates, a majority of people in Germany believe that VAT on food should be as low as possible. Only a minority supports alternative objectives, such as higher taxation of less healthy or more climate-damaging products, or a uniform VAT rate across all goods and services.
How should the German federal government support economic growth?
To promote economic growth and long-term prosperity, the federal government—according to the German public—should lower energy prices and taxes. Measures aimed at improving framework conditions for providers—such as reducing energy costs for businesses and strengthening support for research—also receive approval, albeit at a lower level. The “Klimageld” (a climate premium) remains controversial in Germany.
Lowering taxes for citizens receives high approval across all groups, regardless of gender, age, or income. Even low-income respondents, who typically pay comparatively little tax, consider tax cuts sensible. Only just under half consider paying citizens a "Klimageld“ to be a sensible measure to promote the economy. Skepticism is especially high among middle-aged respondents and those with higher incomes.
How high do Germans estimate their taxes to be?
People in Germany are not well informed about the level and distribution of their tax burden. The average burden from wage and income tax is estimated at 27%; according to the Bund der Steuerzahler, the actual figure in 2025 was 12%. For VAT, the discrepancy between the estimated and actual burden is even larger: while respondents place it at an average of 18%, the actual figure is 5%.
KEY INSIGHTS
Our results clearly show: Increasing VAT would be a serious blow to private consumption in Germany. This is true even if it is paired with income tax relief.
People perceive rising prices in everyday life directly and react sensitively to them—far more than to additional room in their budgets. Concerns about higher living costs dominate, especially among older respondents and in low-income households. Women, who are slightly more likely than men to do weekly grocery shopping for families, also react negatively to higher consumption taxes.
Rather than igniting additional momentum, there is a risk—particularly against the backdrop of the current economic situation—that such a reform would lead consumers to postpone or reduce spending. We should be wary of this possibility, especially since exports are unlikely to provide much impetus in the medium term due to tariffs and increasing regionalization.
To strengthen domestic consumption, consumers need a clear signal of relief—such as lower taxes or structurally lower energy prices, driven not by subsidies but by greater energy supply—without new burdens elsewhere. Simple reshuffling of financial burdens from “one pocket to another” no longer seems to generate optimism in the current situation.
Authors
- PD Dr. Katharina Gangl, Director Studies, NIM, katharina.gangl@nim.org
- Prof. Dr. Sebastian J. Goerg, Director Research, NIM, sebastian.goerg@nim.org
- Tobias Biró, Head of Research Communication, NIM, tobias.biro@nim.org
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