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Quasi-experimental evidence on Spanish VAT cuts during economic shocks

Author

Listed:
  • Baquero-Pérez, Javier
  • Fernández Romero, Daniel
  • Rodríguez-Crespo, Ernesto
  • Da Silva-Bichara, Julimar

Abstract

We examine the impact of unconventional fiscal policy by analyzing the effects of a temporary reduction in the VAT on food prices on the Spanish economy, implemented under Law 20/2022 and covering the period from January 2023 to December 2024. Using a set of state-of-the-art difference-in-differences methods, we present three main findings. First, we observe a moderate price response to the VAT cut, indicating a partial pass-through effect of approximately 90 %. Second, the effect appears to be temporary, as prices began to rise again three months after the reduction, suggesting the absence of hysteresis. Third, our results remain robust even when disaggregated by the magnitude of the VAT reduction, distinguishing between two cases: from 10 % to 5 %, and from 4 % to 0 %.

Suggested Citation

  • Baquero-Pérez, Javier & Fernández Romero, Daniel & Rodríguez-Crespo, Ernesto & Da Silva-Bichara, Julimar, 2025. "Quasi-experimental evidence on Spanish VAT cuts during economic shocks," International Review of Economics & Finance, Elsevier, vol. 104(C).
    • Handle: RePEc:eee:reveco:v:104:y:2025:i:c:s1059056025009207
    DOI: 10.1016/j.iref.2025.104757
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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