Estimating VAT Pass Through

IMF Working Papers, September 30, 2015

Source details

Paper estimates the pass through of VAT changes to consumer prices using a unique dataset with disaggregated, monthly data on prices and VAT rates for 17 Eurozone countries over 1999-2013.
Authors: Dora Benedek, Ruud A. de Mooij, Philippe Wingender.
Date: September 30, 2015.
Series: Working Paper No. 2015/214; Issue: 214; Volume: 2015; Pages: 41.
DOI: https://doi.org/10.5089/9781513586359.001.
ISBN: 9781513586359.
ISSN: 1018-5941.

Aggregate pass through:
- Pass through is much less than full on average.
- For changes in the standard rate, final pass through is about 100 percent.
- For reduced rates, final pass through is around 30 percent.
- For reclassifications, final pass through is essentially zero.
Dynamics and heterogeneity:
- Differing dynamics of pass through for durables and non-durables.
- No significant difference in pass through between rate increases and decreases.
- Signs of non-monotonicity in the relationship between pass through and the breadth of the consumption base affected.
- Indications of significant anticipation effects together with some evidence of lagged effects in the two years around reform.
Robustness:
- Results are robust against endogeneity and attenuation bias.

Subject: Consumer prices, Consumption, Consumption taxes, Labor, National accounts, Prices, Taxes, Unemployment rate, Value-added tax.
Keywords: confidence interval, Consumer prices, consumer spending, Consumption, consumption category, consumption share, Consumption taxes, cross-price elasticity, Europe, Pass through, Price effect, Tax incidence, Unemployment rate, Value added tax, Value-added tax, VAT rate change, VAT reform, WP.

IMF Working Paper — Dora Benedek, Ruud A. de Mooij, and Philippe Wingender. "Estimating VAT Pass Through", September 30, 2015.