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Does the Value-Added Tax Shift to Consumption Prices?

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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.

Suggested Citation

  • Matti Viren, 2009. "Does the Value-Added Tax Shift to Consumption Prices?," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(2), pages 123-142, July.
  • Handle: RePEc:fau:aucocz:au2009_123
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    1. Fullerton, Don & Metcalf, Gilbert E., 2002. "Tax incidence," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872, Elsevier.
    2. Chouinard, Hayley & Perloff, Jeffrey M., 2004. "Incidence of federal and state gasoline taxes," Economics Letters, Elsevier, vol. 83(1), pages 55-60, April.
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    1. Bálint Ván & Dániel Oláh, 2018. "Does VAT Cut Appear on the Menu? The Consumer Price Impact of Hungarian VAT Decreases of 2016–2017," Public Finance Quarterly, State Audit Office of Hungary, vol. 63(3), pages 355-375.
    2. 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.
    3. Bálint Ván & Dániel Oláh, 2018. "Does VAT Cut Appear on the Menu? The Consumer Price Impact of Hungarian VAT Decreases of 2016–2017," Public Finance Quarterly, State Audit Office of Hungary, vol. 63(3), pages 355-375.
    4. Mala, Zdenka & Maly, Michal, 2012. "Impact of Government Reform on Beef Market," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 4(4 Special), pages 1-9, December.
    5. Matti Viren, 2013. "Is the housing allowance shifted to rental prices?," Empirical Economics, Springer, vol. 44(3), pages 1497-1518, June.
    6. 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.

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    More about this item

    Keywords

    Value-added tax; tax incidence; consumption taxes;
    All these keywords.

    JEL classification:

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

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