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Consumer Demand System Estimation and Value Added Tax Reforms in the Czech Republic

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  • Petr Janský

    (CERGE-EI and Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague)

Abstract

The value added tax (VAT) rates have recently changed in the Czech Republic, and in this paper I simulate the impact of these reforms. They are an example of changes in indirect taxes that change the prices of goods and services, to which households can respond by adjusting their expenditures. I first estimate the behavioral response of consumers to price changes in the Czech Republic by applying a consumer demand model of the Quadratic Almost Ideal Demand System (QUAIDS) on the basis of the Czech Statistical Office household expenditure and price data for the period from 2001 to 2011. I derive estimates of own- and cross-price and income elasticities for individual households. I then use these elasticities to estimate the impact of the changes in VAT rates that were proposed or implemented between 2011 and 2013 on households’ quantity demanded and government revenues. One of the main findings is that the estimated increases in govern-ment revenues that take the consumer responses into account are more than a quarter lower than the estimates that use the static simulation.

Suggested Citation

  • Petr Janský, 2014. "Consumer Demand System Estimation and Value Added Tax Reforms in the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(3), pages 246-273, June.
    • Handle: RePEc:fau:fauart:v:64:y:2014:i:3:p:246-273
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    Cited by:

    1. Karel Janda & Zuzana Lajksnerová & Jakub Mikolášek, 2019. "A General Equilibrium Model of Optimal Alcohol Taxation in the Czech Republic," Prague Economic Papers, Prague University of Economics and Business, vol. 2019(5), pages 589-611.
    2. Peter Tóth & Andrej Cupák & Marian Rizov, 2021. "Measuring the efficiency of VAT reforms: a demand system simulation approach," Oxford Economic Papers, Oxford University Press, vol. 73(3), pages 1218-1243.
    3. Petr JANSKÝ, 2016. "Impact of the changes in excise duties on households in the Czech Republic," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 62(2), pages 51-61.
    4. Andrej Cupak & Jan Pokrivcak & Marian Rizov, 2016. "Demand for Food Away from Home in Slovakia," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(4), pages 354-369, August.
    5. repec:prg:jnlpep:v:preprint:id:706:p:1-23 is not listed on IDEAS
    6. Molnár, György & Cseres-Gergely, Zsombor & Szabó, Tibor, 2016. "Pénzt vagy életet?. Empirikus eredmények néhány gazdaságpolitikai beavatkozás heterogén jóléti hatásairól [For money or for life?. Empirical findings on the heterogenous welfare effects of some eco," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 901-943.
    7. Tatiana Chudá & Petr Janský, 2016. "The Impact of a Fat Tax: Progressive in Health, but Regressive in Income?," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(4), pages 445-458.
    8. Matěj Bajgar & Petr Janský, 2015. "Skutečná kupní síla v krajích České republiky: zohlednění regionální cenové hladiny a struktury pracovní síly [Purchasing Power in the Regions: Reflecting Price Levels and Employment Structures]," Politická ekonomie, Prague University of Economics and Business, vol. 2015(7), pages 860-876.
    9. Braha, Kushtrim & Cupak, Andrej & Qineti, Artan & Pokrivcak, Jan, 2018. "Food Demand System in Transition Economies: Evidence from Kosovo," 162nd Seminar, April 26-27, 2018, Budapest, Hungary 272050, European Association of Agricultural Economists.
    10. Lapinskas, Arunas & Makhova, Larisa & Haikin, Mark & Troyanskaya, Marija & Mutalimov, Verdi, 2023. "Longevity of EU membership and VAT practices: Dependencies, Contradictions And Implications," Journal of Policy Modeling, Elsevier, vol. 45(3), pages 630-643.
    11. Thomas, Alastair, 2019. "Who Would Win from a Multi-rate GST in New Zealand: Evidence from a QUAIDS Model," Working Paper Series 8127, Victoria University of Wellington, Chair in Public Finance.
    12. Javier García-Enríquez & Cruz A. Echevarría, 2018. "Demand for culture in Spain and the 2012 VAT rise," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 42(3), pages 469-506, August.
    13. Arkadiusz Bernal, 2018. "The Value Added Tax Incidence – the Case of the Book Market in CEE Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(2), pages 144-164, April.
    14. Javier García-Enríquez & Cruz A. Echevarría, 2016. "Consistent Estimation of a Censored Demand System and Welfare Analysis: The 2012 VAT Reform in Spain," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(2), pages 324-347, June.
    15. Zsombor Cseres-Gergely & Gyorgy Molnar & Tibor Szabo, 2017. "Expenditure responses, policy interventions and heterogeneous welfare effects in Hungary during the 2000s," CERS-IE WORKING PAPERS 1704, Institute of Economics, Centre for Economic and Regional Studies.
    16. Kamil Dybczak & Peter Tóth & David Voòka, 2014. "Effects of Price Shocks on Consumer Demand: Estimating the QUAIDS Demand System on Czech Household Budget Survey Data," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(6), pages 476-500, December.
    17. Wu, Qingchuan & Gong, Yuanyuan & Yan, Zhijuan, 2021. "Whether the policy of RBTVAT has promoted the expansion of UCIBs: Quasi-natural experiment based on new statistical scope data," International Review of Financial Analysis, Elsevier, vol. 77(C).
    18. Anna Kowal & Grzegorz Przekota, 2021. "VAT Efficiency—A Discussion on the VAT System in the European Union," Sustainability, MDPI, vol. 13(9), pages 1-16, April.
    19. Petr Janský & Klára Kalíšková & Daniel Münich, 2016. "Does the Czech Tax and Benefit System Contribute to One of Europe’s Lowest Levels of Relative Income Poverty and Inequality?," Eastern European Economics, Taylor & Francis Journals, vol. 54(3), pages 191-207, May.
    20. Hodzic, Sabina & Celebi, Hulya, 2017. "Value-Added Tax And Its Efficiency: Eu–28 And Turkey," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 8(2), pages 79-90.
    21. Gostkowski Michał, 2018. "Elasticity of Consumer Demand: Estimation Using a Quadratic Almost Ideal Demand System," Econometrics. Advances in Applied Data Analysis, Sciendo, vol. 22(1), pages 68-78, March.

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    More about this item

    Keywords

    consumer behavior; demand system; QUAIDS; tax reforms; value added tax;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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