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Does the Value-Added Tax Shift to Consumption Prices?

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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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Related research
Keywords: Value-added tax; tax incidence; consumption taxes;

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

References listed on IDEAS
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  1. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June. [Downloadable!] (restricted)
    Other versions:
  2. 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:
  3. John R. Swinton & Christopher R. Thomas, 2001. "Using Empirical Point Elasticities to Teach Tax Incidence," Journal of Economic Education, Helen Dwight Reid Foundation, vol. 32(4), pages 356-368. [Downloadable!]
  4. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March. [Downloadable!] (restricted)
  5. Don Fullerton & Gilbert E. Metcalf, 2002. "Tax Incidence," NBER Working Papers 8829, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Coenen, Günter & McAdam, Peter & Straub, Roland, 2008. "Tax reform and labour-market performance in the euro area: A simulation-based analysis using the New Area-Wide Model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2543-2583, August. [Downloadable!] (restricted)
    Other versions:
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