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Ad-valorem tax incidence and after-tax price adjustments: evidence from Brazilian basic basket food

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  • Ricardo Batista Politi
  • Enlinson Mattos

Abstract

Recent empirical work on tax incidence suggests that after-tax price responses are independent of the tax change direction. This paper investigates asymmetric price responses to ad-valorem tax changes in the Brazilian food market for 10 goods in 16 states during the period 1994-2008. Our results suggest that when tax rates increase, tax full shifting occurs for 2 of the 10 goods and tax overshifting occurs for one of the 10 goods; the price response to tax cuts is an undershifting for all goods. Moreover, this last result is similar to our estimation of (average) tax incidence (undershifting). We also investigate the short-term and long-term relationships between prices and VAT rate parameters and find that prices seem to respond to tax shocks within four months.

Suggested Citation

  • Ricardo Batista Politi & Enlinson Mattos, 2011. "Ad-valorem tax incidence and after-tax price adjustments: evidence from Brazilian basic basket food," Canadian Journal of Economics, Canadian Economics Association, vol. 44(4), pages 1438-1470, November.
  • Handle: RePEc:cje:issued:v:44:y:2011:i:4:p:1438-1470
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    Cited by:

    1. Wagner, Franz W. & Weber, Stefan & Gegenwarth, Lisa, 2014. "Wird die Umsatzsteuer überwälzt? Eine empirische Studie der Preispolitik im deutschen Hotelgewerbe," arqus Discussion Papers in Quantitative Tax Research 179, arqus - Arbeitskreis Quantitative Steuerlehre.
    2. Youssef Benzarti & Dorian Carloni & Jarkko Harju & Tuomas Kosonen, 2017. "What Goes Up May Not Come Down: Asymmetric Incidence of Value-Added Taxes," NBER Working Papers 23849, National Bureau of Economic Research, Inc.
    3. Simon Voigts, 2016. "VAT multipliers and pass-through dynamics," SFB 649 Discussion Papers SFB649DP2016-026, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    4. Chin W. Yang & Hui Wen Cheng & Ching Wen Chi & Bwo-Nung Huang, 2016. "A Tax Can Increase Profit of a Monopolist or a Monopoly-like Firm: A Fiction or Distinct Possibility?," Hacienda Pública Española, IEF, vol. 216(1), pages 39-60, March.
    5. Dora Benedek & Ruud A. de Mooij & Michael Keen & Philippe Wingender, 2015. "Estimating VAT Pass Through," CESifo Working Paper Series 5531, CESifo Group Munich.
    6. repec:kap:itaxpf:v:24:y:2017:i:6:d:10.1007_s10797-016-9406-3 is not listed on IDEAS
    7. repec:ijm:journl:v109:y:2017:i:1:p:39-72 is not listed on IDEAS
    8. Caitlan Russell & Corne van Walbeek, 2016. "How does a change in the excise tax on beer impact beer retail prices in South Africa?," SALDRU Working Papers 162, Southern Africa Labour and Development Research Unit, University of Cape Town.
    9. repec:ijm:journl:v10:y:2017:i:1:p:39-72 is not listed on IDEAS
    10. Andrej Cupák & Peter Tóth, 2017. "Measuring the Efficiency of VAT reforms: Evidence from Slovakia," Working and Discussion Papers WP 6/2017, Research Department, National Bank of Slovakia.

    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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