Meat taxes in Europe can be designed to avoid overburdening low-income consumers

Stringent environmental regulation of livestock farming and meat products is notably lacking, despite their contribution to climate change, biodiversity loss, deforestation and nitrogen pollution. Recent assessments suggest that the 1.5 °C climate target set out in the Paris Agreement cannot be attained without rapid and ambitious changes to global food systems. Filling this regulatory gap is increasingly important, especially in high-income regions such as the European Union, where per capita meat consumption is currently at unsustainably high levels. Against this backdrop, the topic of meat taxation has gained growing political attention in recent years, with the European Commission's Farm-to-Fork Strategy detailing a vision of an EU tax system that adequately reflects the 'real cost' of environmental damages associated with food items. The dietary transition necessary to align food systems with environmental objectives will, among other measures, probably require a price signal. In the absence of a comprehensive upstream price on greenhouse gas (GHG) emissions and other agricultural externalities, consumption taxes on meat and other animal products, which are substantially more carbon intensive than other foods, are a simple second-best policy option. However, a recurring argument against taxation of food items is its potential regressivity. As low-income households spend a larger share of their income on food, they are disproportionately affected by food taxes. For precisely this reason, value-added taxes on food and other essential items have been set at reduced rates in many European countries. This begs the question whether an environmental price signal on high-polluting food items will inevitably come at the expense of higher inequality. A disproportionate burden on low-income households threatens the distributional fairness and political feasibility of introducing meat taxes, especially in light of rising food prices and inflation, and may exacerbate existing income-related food insecurities, especially in eastern and southern Europe. This paper investigates these distributional effects when designing consumption taxes on meat, focusing on three essential design choices: (1) whether taxes should be ad valorem or based on product units; (2) the extent to which tax rates can be differentiated according to environmental impact; and (3) how the revenues from meat taxation should be handled. The analysis simulates how these choices affect the distributional outcomes from taxing meat consumption using microdata from consumer expenditure surveys in 25 European countries (European Union and United Kingdom).

A substantive body of research has demonstrated the regressivity of carbon-equivalent food taxes. However, these studies have either focused on single countries or considered a single tax design. In contrast, this study compares the relative distributional effects of ad valorem taxes, unit taxes, and emissions-based taxes on meat and different revenue recycling mechanisms in a multi-country context, using household-level expenditure data from the EU Household Budget Survey (EU-HBS). Each scenario compares changes in the Gini coefficient with and without revenue recycling, analyzing recycling via reductions in value-added tax (VAT) rates on fruits and vegetables and via uniform lump-sum transfers to every consumer.

The analysis uses microdata from the 2010 wave of the EU Household Budget Survey (EU-HBS) covering 25 European countries (EU and UK). Expenditure data is categorized according to the Classification of Individual Consumption by Purpose. The study focuses on four main meat tax scenarios: (1) a 5% ad valorem tax on all meat types; (2) a shift from the reduced to the full VAT rate for all meat types; (3) a 50€ t⁻¹ CO₂ equivalent (CO₂e) carbon tax based on the average GHG emissions associated with a specific meat type; and (4) a 0.35€ kg⁻¹ unit tax on meat. For each scenario, three cases are compared regarding revenue handling: (a) tax revenues disappear; (b) revenues are returned as equal per capita payments; and (c) revenue is used to reduce VAT rates on fruit and vegetables. A microsimulation determines the absolute per capita tax burden in each country and calculates the Gini coefficients before and after the tax reform. The analysis assumes a demand elasticity of zero for the main results to determine the upper bound of distributional effects, checking for robustness using transferred elasticities from the literature. Average GHG intensities of different meat types are used, summarized in Table 2. The study also employs a sensitivity analysis using the 2015 wave of the EU-HBS and considers different price elasticities of demand. The Gini coefficient is used as the primary measure of inequality.

The share of spending on meat decreases across expenditure quintiles (Engel's Law), while absolute spending increases. This suggests that meat taxation is regressive but can be turned progressive with lump-sum rebates. However, several factors influence the distributional impact of different tax designs. First, consumption of meat has satiation levels, leading to a lower spread of consumption in units across quintiles than expenditure. Second, preferences for quality attributes lead high-income individuals to spend more per unit. Third, culinary traditions vary across countries. The analysis assesses four tax scenarios: (1) 5% ad valorem tax on all meat; (2) raising VAT on meat to the standard rate; (3) GHG-based tax (50€ t⁻¹ CO₂e); and (4) 0.35€ kg⁻¹ unit tax. Across all scenarios, uncompensated meat taxes are slightly regressive. However, revenue recycling via uniform lump-sum transfers reverses this effect in most cases and renders the tax progressive. Revenue recycling through VAT reductions on fruit and vegetables has a less pronounced progressive effect. The distributional effect varies with tax design; regressivity is reduced by differentiating tax rates according to carbon intensity. The impact of meat taxation without recycling is regressive across all scenarios. However, when revenues are redistributed as equal per capita transfers, the impact becomes progressive. VAT reductions on fruits and vegetables also mitigate regressivity, though to a lesser extent. The overall regressivity is reduced by differentiating tax rates according to the average carbon intensity of meat types, moving from unit taxation to ad valorem taxes. The average annual per capita tax burden in the lowest quintile is comparatively low, ranging from 21€ to 98€ per year across the EU in the GHG-differentiated tax scenario. Results are robust to assumptions about consumer behavior and the dataset used.

The study shows that the regressive burden of meat taxes is mild for reasonably moderate tax levels. The regressivity can be reversed in most cases by non-targeted revenue recycling via uniform per capita transfers. Revenue recycling via VAT rate reductions on fruit and vegetables dampens but does not fully offset the regressive effect. Sensitivity analyses show that this mitigating effect is further reduced with increasing demand elasticities and higher tax rates. Revenue recycling is the strongest lever to reduce inequality impacts, with the favorable distributional dynamic of ad valorem taxation being of secondary importance. While the results are robust, limitations exist. The study didn't include substitution effects across meat types, assumed 100% tax incidence on consumers, and did not consider horizontal inequalities or general equilibrium effects. The policy choice between different meat tax designs is constrained by regulatory landscapes and administrative implementability. Targeted transfers to low-income groups might be required for feasibility.

Policymakers in the European Union may introduce a consumption tax on meat without fearing adverse distributional outcomes between consumers in different expenditure quintiles, provided revenues are returned to citizens as uniform lump-sum payments. Using meat tax revenues to reduce VAT on fruit and vegetables is generally insufficient to reverse the regressive effect. Further research should investigate substitution effects across meat types, explore horizontal inequalities, and analyze general equilibrium effects of meat taxation.

The study's limitations include the lack of robust meta studies on cross-price elasticities, the assumption of 100% tax incidence on consumers, and the exclusion of substitution effects across meat types, horizontal inequalities and general equilibrium effects. The analysis also relies on transferred elasticities from other studies due to data limitations and uses a relatively simple model of consumer behavior.