How much revenue loss can be expected from the introduction of a consumption tax system? Less than 1% of GDP?

The current tax system is frequently seen as a reason for the continuingly weak investment and growth in Germany. A consumption-oriented reform of the tax system is thus favoured by many German economists. Critics of this idea point out that this will lead to a reduction of the assessment basis at the enterprise level, which would either require higher tax rates or would result in high tax revenue shortfalls. Prof. Clemens Fuest and Johannes Becker, University of Cologne, examine the amount of revenue losses that would occur if Germany introduced a consumption-based system of taxation at unchanged tax rates. They show that the loss of tax revenue in the case of a consumption-oriented tax reform in 1983 to 1998 would have been surprisingly small. Apparently, the loss of revenue that would result from a reduction of the assessment basis would be offset by considerable gains from the abolition of tax loopholes and tax-deductible write-offs.