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The effect of the change in VAT rates on the consumer price index

Author

Listed:
  • Péter Gábriel

    () (Magyar Nemzeti Bank (central bank of Hungary))

  • Ádám Reiff

    () (Magyar Nemzeti Bank (central bank of Hungary))

Abstract

In the autumn of 2006 the Magyar Nemzeti Bank launched a series of research projects on the pricing of products and services with non-regulated prices, which is expected to last for one and a half years. Store-level price quotes used for the Hungarian CSO’s (Central Statistical Office) consumer price index calculation serve as a basis for the research. As a first step, we examined how earlier changes in VAT rates (the VAT increase in January 2004 and the VAT cut in January 2006) influenced the prices of products and services. Our analysis is of particular importance as the VAT rate of certain products increased again in September 2006. Our findings show that while a larger part of the VAT increase was transmitted into consumer prices within a few months, the VAT cut reduced consumer prices to a much smaller extent, thus adding to the profit of stores – at least in the short run.

Suggested Citation

  • Péter Gábriel & Ádám Reiff, 2006. "The effect of the change in VAT rates on the consumer price index," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 1(2), pages 14-20, December.
  • Handle: RePEc:mnb:bullet:v:1:y:2006:i:2:p:14-20
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    File URL: http://www.mnb.hu/letoltes/mnbsz-200612-gabriel-reiff-en.pdf
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    Cited by:

    1. Dániel Felcser, 2013. "How should the central bank react to the VAT increase?," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 8(1), pages 35-41, January.

    More about this item

    Keywords

    Consumer Price Index; state dependent pricing; VAT-rates.;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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