Does the Value-Added Tax Shift to Consumption Prices?

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Does the Value-Added Tax Shift to Consumption Prices?

Author Info

Matti Viren () (Department of Economics, University of Turku, Finland)

Abstract

This paper deals with the question of how consumption taxes, especially the value-added tax, affect consumption prices. The analyses are based on data from EU countries for the period 1970–2004. The starting point is a conventional supply-demand analysis of the tax incidence problem. This problem is solved using some simple price mark-up equations, Phillips curves and inflation forecast error equations. All these equations are estimated from panel data from EU countries using different estimators and variable specifications. In addition, an analysis is carried out with Finnish excise taxes using commodity/outlet level micro data for the early 2000s. A general result of all analyses is that more than one half of a tax increase shifts to consumer prices. By contrast, there is less evidence on shifts to producer prices.

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Publisher Info
Article provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its journal AUCO Czech Economic Review.

Volume (Year): 3 (2009)
Issue (Month): 2 (July)
Pages: 123-142
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Handle: RePEc:fau:aucocz:au2009_123

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Find related papers by JEL classification:
H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

References listed on IDEAS
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Other versions:
- Sam Peltzman, 1998. "Prices Rise Faster Than They Fall," University of Chicago - George G. Stigler Center for Study of Economy and State 142, Chicago - Center for Study of Economy and State.
Chouinard, Hayley & Perloff, Jeffrey M., 2004. "Incidence of federal and state gasoline taxes," Economics Letters, Elsevier, vol. 83(1), pages 55-60, April. [Downloadable!] (restricted)
Other versions:
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Other versions:
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Other versions:
- Günter Coenen & Peter McAdam & Roland Straub, 2007. "Tax reform and labour-market performance in the euro area - a simulation-based analysis using the New Area-Wide Model," Working Paper Series 747, European Central Bank. [Downloadable!]

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