The effect of the change in VAT rates on the consumer price index
AbstractIn the autumn of 2006 the Magyar Nemzeti Bank launched a series of research projects on the pricing of products and services with non-regulated prices, which is expected to last for one and a half years. Store-level price quotes used for the Hungarian CSO’s (Central Statistical Office) consumer price index calculation serve as a basis for the research. As a first step, we examined how earlier changes in VAT rates (the VAT increase in January 2004 and the VAT cut in January 2006) influenced the prices of products and services. Our analysis is of particular importance as the VAT rate of certain products increased again in September 2006. Our findings show that while a larger part of the VAT increase was transmitted into consumer prices within a few months, the VAT cut reduced consumer prices to a much smaller extent, thus adding to the profit of stores – at least in the short run.
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Bibliographic InfoArticle provided by Magyar Nemzeti Bank (the central bank of Hungary) in its journal MNB Bulletin.
Volume (Year): 1 (2006)
Issue (Month): 2 (December)
Consumer Price Index; state dependent pricing; VAT-rates.;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- D40 - Microeconomics - - Market Structure and Pricing - - - General
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- Dániel Felcser, 2013. "How should the central bank react to the VAT increase?," MNB Bulletin, Magyar Nemzeti Bank (the central bank of Hungary), vol. 8(1), pages 35-41, January.
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