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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.

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  • 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
    DOI: 10.1111/j.1540-5982.2011.01680.x
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    Cited by:

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    3. Ván, Bálint & Oláh, Dániel, 2018. "Does VAT Cut Appear on the Menu? – The Consumer Price Impact of Hungarian VAT Decreases of 2016–2017," Public Finance Quarterly, Corvinus University of Budapest, vol. 63(3), pages 355-375.
    4. Dora Benedek & Ruud A. Mooij & Michael Keen & Philippe Wingender, 2020. "Varieties of VAT pass through," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(4), pages 890-930, August.
    5. James Alm & Kay Blaufus & Martin Fochmann & Erich Kirchler & Peter N. C. Mohr & Nina E. Olson & Benno Torgler, 2020. "Tax Policy Measures to Combat the SARS-CoV-2 Pandemic and Considerations to Improve Tax Compliance: A Behavioral Perspective," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 76(4), pages 396-428.
    6. repec:hum:wpaper:sfb649dp2016-026 is not listed on IDEAS
    7. 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 / Review of Public Economics, IEF, vol. 216(1), pages 39-60, March.
    8. Calderón, Mariana & Cortés, Josué & Pérez Pérez, Jorge & Salcedo, Alejandrina, 2023. "Disentangling the Effects of Large Minimum Wage and VAT Changes on Prices: Evidence from Mexico," Labour Economics, Elsevier, vol. 80(C).
    9. Panayiota Lyssiotou & Elena Savva, 2021. "Who pays taxes on basic foodstuffs? Evidence from broadening the VAT base," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(1), pages 212-247, February.
    10. 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.
    11. Ms. Dora Benedek & Ruud A. de Mooij & Mr. Philippe Wingender, 2015. "Estimating VAT Pass Through," IMF Working Papers 2015/214, International Monetary Fund.
    12. Francesca Gastaldi & Paolo Liberati & Elena Pisano & Simone Tedeschi, 2017. "Regressivity-Reducing VAT Reforms," International Journal of Microsimulation, International Microsimulation Association, vol. 10(1), pages 39-72.
    13. Rodrigo Mariscal & Alejandro M. Werner, 2018. "The Price and Welfare Effects of The Value-Added Tax: Evidence from Mexico," IMF Working Papers 2018/240, International Monetary Fund.
    14. Simon Loretz & Oliver Fritz, 2021. "Wirkungen der im Zuge der COVID-19-Krise reduzierten Mehrwertsteuersätze. Erfahrungswerte aus rezenten Reformen," WIFO Studies, WIFO, number 67258, April.
    15. Zhila Abshari & Glenn P. Jenkins & Chun-Yan Kuo & Mostafa Shahee, 2021. "Progressive Taxation versus Progressive Targeted Transfers in the Design of a Sustainable Value Added Tax System," Sustainability, MDPI, vol. 13(20), pages 1-17, October.
    16. Youssef Benzarti & Dorian Carloni & Jarkko Harju & Tuomas Kosonen, 2020. "What Goes Up May Not Come Down: Asymmetric Incidence of Value-Added Taxes," Journal of Political Economy, University of Chicago Press, vol. 128(12), pages 4438-4474.
    17. Miguel Gómez-Antonio & Ignacio del Moral Arce & Miriam Hortas-Rico, 2022. "Are vat reforms an effective tool for promoting the consumption of culture? Evidence from a quasiexperiment in Spain," Working Papers. Collection A: Public economics, governance and decentralization 2203, Universidade de Vigo, GEN - Governance and Economics research Network.
    18. Juan Carlos Caro & Pourya Valizadeh & Alejandrina Correa & Andres Silva & Shu Wen Ng, 2020. "Combined fiscal policies to promote healthier diets: Effects on purchases and consumer welfare," PLOS ONE, Public Library of Science, vol. 15(1), pages 1-23, January.
    19. Franz W. Wagner & Stefan Weber, 2016. "Wird die Umsatzsteuer überwälzt? [Do Firms Pass on VAT?]," Schmalenbach Journal of Business Research, Springer, vol. 68(4), pages 401-421, December.
    20. Caitlan Russell & Corne van Walbeek, 2016. "How does a Change in the Excise Tax on Beer Impact Beer Retail Prices in South Africa?," South African Journal of Economics, Economic Society of South Africa, vol. 84(4), pages 555-573, December.
    21. Alex Ufier, 2017. "The effect of VATs on government balance sheets," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(6), pages 1141-1173, December.
    22. repec:ijm:journl:v109:y:2017:i:1:p:39-72 is not listed on IDEAS
    23. 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.

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    JEL classification:

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

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