Lower the VAT on gasoline?

Sometimes, a good social response is not a good political response. Lowering VAT on fuels is one of the most common responses –and best received by citizens– when the cost of living rises, as we are experiencing due to the outbreak of the war in Iran. Its effect is immediate and visible and, for this very reason, it often becomes one of the options taken by governments. However, as Brussels has warned, which has questioned Sánchez's reduction, not only its legality but also its effects must be called into question. To what extent have these types of measures become an almost automatic response to episodes of inflation without taking into account their costs and benefits, compared to other less conspicuous, but perhaps more effective, political alternatives?It is not difficult to understand why VAT reductions are attractive. In a context like the current one, marked by rising fuel prices, reducing VAT translates directly into a lower price at the petrol station. It is an easy-to-explain measure, which reaches everyone and is immediately perceived, making it particularly tempting for governments. But this same simplicity is also its limit: not all households benefit equally, and they often end up benefiting those who consume the most. Furthermore, by artificially lowering the price, the measures reduce the incentives to adjust consumption in a context where energy prices remain high and with no clear prospects of reduction., the measures reduce the incentives to adjust consumption in a context where energy prices remain high and with no clear prospects of reduction.They are not, therefore, isolated cases. Our tax system has been accumulating a set of benefits – reduced and super-reduced VAT rates, deductions and exemptions – which, far from forming a coherent system, reduce its revenue and the system's redistributive capacity. They are mechanisms that reach many but often redistribute little, and that end up functioning more as generalized discounts than as instruments of social policy. In this context, there is growing consensus on the need to review these tax benefits and strengthen more direct and better-oriented instruments.The problem is not the lack of instruments, but how we use them. We prioritize visible measures that help diffusely, while the most effective ones often do not arrive. The challenge is not to add more aid, but to ensure that those that work are the ones that are applied. Whether they are popular or not.