Inflation Smoothing and the Modest Effect of VAT in Germany
IMF Working Papers, July 1, 2008
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- Inflation Smoothing and the Modest Effect of VAT in Germany
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Bibliographic details
- Authors: Stephan Danninger, Alina Carare
- Published: July 1, 2008
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451870336.001
Summary and central argument
- Increases in German core inflation following the 2007 VAT hike were smaller than expected, which led to speculation about delayed inflationary effects.
- The paper argues that price increases in advance of the VAT hike explain the small increase upon implementation.
- Authors: Stephan Danninger, Alina Carare
- Date: July 1, 2008
- Series: Working Paper No. 2008/175
Key empirical findings
- Core inflation rose by 0.36 percentage point in the run up to the VAT hike.
- Core inflation rose by a further 0.40 percentage point at the time of the VAT hike.
- Cumulatively, the tax hike contributed to two thirds of the increase in core inflation in 2006-07.
- Estimated pass-through of the VAT hike to consumer prices: 73 percent.
- Most of the increase in 2006 was of general nature.
- About one sixth of the increase can be attributed to durable goods and items with low degree of competition.
Subjects and keywords
- Subject: Consumer price indexes, Consumption, Inflation, Price adjustments, Value-added tax
- Keywords: core inflation, inflation rate, price, WP