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VAT pass-through: the case of a large and permanent reduction in the market for menstrual hygiene products

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  • Alisa Frey

    (Heinrich Heine University Düsseldorf)

  • Justus Haucap

    (Heinrich Heine University Düsseldorf)

Abstract

This paper examines the price effects of a VAT (value-added tax) reduction for menstrual hygiene products in Germany. Several aspects make this VAT reduction particularly interesting: the reduction is exogenous to economic conditions, the reduction was substantial and permanent, and demand can be assumed to be inelastic. We find that the VAT reduction was completely passed through to consumers. In fact, pass-through rates of significantly more than 100% can be observed. We find that the excess pass-through occurred in relatively competitive market segments, and that it is almost fully explained by retailers rounding down prices after the reduction.

Suggested Citation

  • Alisa Frey & Justus Haucap, 2024. "VAT pass-through: the case of a large and permanent reduction in the market for menstrual hygiene products," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(1), pages 160-202, February.
    • Handle: RePEc:kap:itaxpf:v:31:y:2024:i:1:d:10.1007_s10797-023-09813-w
    DOI: 10.1007/s10797-023-09813-w
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    More about this item

    Keywords

    VAT; Pass-through; Hygiene products; Retail competition; Gender equality; Rounding effects; Tampon tax;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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