IDEAS home Printed from https://ideas.repec.org/a/prf/journl/v8y2014i2p149-166.html
   My bibliography  Save this article

Consumption Tax Incidence: Evidence from Natural Experiment in the Czech Republic

Author

Listed:
  • Jan Zapal

    (IAE-CSIC, Barcelona/CERGE-EI, Prague)

Abstract

This paper estimates incidence of consumption taxation. We use data from natural experiment that took place in 2004 in the Czech Republic. Not only the value added tax (VAT) rates applicable to a range of goods and services changed but also the classification into the standard vs. reduced rate group has been modified. Most importantly, some goods and services experienced no change. This allows us to use difference-in-differences estimation to assess the extent to which taxes are shifted on consumers. Our estimates indicate that those goods and services that experienced decline of the VAT rate from 22% to 19% show no evidence of decrease in prices. We interpret this as evidence of producers and vendors taking the full advantage of the tax decline. On the other hand, goods and services belonging to the group that experienced VAT rate increase from 5% to 19% show lasting increase of prices by up to 6%. This indicates that the higher tax is at least partially shifted on consumers.

Suggested Citation

  • Jan Zapal, 2014. "Consumption Tax Incidence: Evidence from Natural Experiment in the Czech Republic," ACTA VSFS, University of Finance and Administration, vol. 8(2), pages 149-166.
  • Handle: RePEc:prf:journl:v:8:y:2014:i:2:p:149-166
    as

    Download full text from publisher

    File URL: https://www.vsfs.cz/periodika/acta-2014-2-04.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. anonymous, 1995. "Does the bouncing ball lead to economic growth?," Regional Update, Federal Reserve Bank of Atlanta, issue Jul, pages 1-2,4-6.
    2. Hallet, Martin, 2002. "Income convergence and regional policies in Europe: results and future challenges," ERSA conference papers ersa02p080, European Regional Science Association.
    3. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    4. Michael Bräuninger & Annekatrin Niebuhr, 2008. "Agglomeration, Spatial Interaction and Convergence in the EU," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 128(3), pages 329-349.
    5. Valentina Meliciani & Franco Peracchi, 2009. "Convergence in per-capita GDP across European regions: a reappraisal," Studies in Empirical Economics, in: Giuseppe Arbia & Badi H. Baltagi (ed.), Spatial Econometrics, pages 203-222, Springer.
    6. Catherine Baumont & Cem Ertur & Julie Le Gallo, 2003. "Spatial Convergence Clubs and the European Growth Process, 1980-1995," Post-Print halshs-00250290, HAL.
    7. Friso Schlitte & Tiiu Paas, 2008. "Regional Income Inequality and Convergence Processes in the EU-25," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2008(Suppl. 2), pages 29-49.
    8. George Petrakos & Ageliki Anagnostou & Panagiotis Artelaris & Yannis Psycharis, 2008. "Growth and Convergence-Divergence Trends in the European Union," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2008(Suppl. 2), pages 9-28.
    9. Robert J. Barro & Xavier Sala-i-Martin, 1990. "Economic Growth and Convergence across The United States," NBER Working Papers 3419, National Bureau of Economic Research, Inc.
    10. Catherine Baumont & Cem Ertur & Julie Gallo, 2003. "Spatial Convergence Clubs and the European Regional Growth Process,1980–1995," Advances in Spatial Science, in: Bernard Fingleton (ed.), European Regional Growth, chapter 4, pages 131-158, Springer.
    11. Xavier Sala-I-Martin, 1997. "Transfers, Social Safety Nets, and Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 81-102, March.
    12. Juan R. Cuadrado-Roura, 2001. "Regional convergence in the European Union: From hypothesis to the actual trends," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 35(3), pages 333-356.
    13. Maza, Adolfo & Hierro, María & Villaverde, José, 2012. "Income distribution dynamics across European regions: Re-examining the role of space," Economic Modelling, Elsevier, vol. 29(6), pages 2632-2640.
    14. Quah, Danny T., 1996. "Empirics for economic growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1353-1375, June.
    15. Fischer, Manfred M. & Stirböck, Claudia, 2004. "Regional Income Convergence in the Enlarged Europe, 1995-2000: A Spatial Econometric Perspective," ZEW Discussion Papers 04-42, ZEW - Leibniz Centre for European Economic Research.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mihaela Simionescu, 2014. "The Beta-convergence Analysis and Regional Disparities in EU-28," ACTA VSFS, University of Finance and Administration, vol. 8(2), pages 167-177.
    2. Jaroslav Danhel & Eva Duchackova, 2014. "Behavioural and Empirical Topics for Discussion on Economic Science Paradigms," ACTA VSFS, University of Finance and Administration, vol. 8(2), pages 100-112.
    3. Barbara Pertold-Gebicka, 2014. "Job Market Polarization and Employment Protection in Europe," ACTA VSFS, University of Finance and Administration, vol. 8(2), pages 133-148.
    4. Tomas Konecny, 2014. "Linkages between the Financial and Real Sectors across Interest Rate Regimes: The Case of the Czech Republic," ACTA VSFS, University of Finance and Administration, vol. 8(2), pages 113-131.
    5. Friso Schlitte & Tiiu Paas, 2008. "Regional Income Inequality and Convergence Processes in the EU-25," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2008(Suppl. 2), pages 29-49.
    6. Tiiu Paas, 2012. "Regional Disparities And Innovations In Europe," ERSA conference papers ersa12p80, European Regional Science Association.
    7. Jan Nevima & Ingrid Majerová, 2015. "Application of ß – Convergence Approach in Visegrad Four Regions," Working Papers 0004, Silesian University, School of Business Administration.
    8. Up Lim, 2016. "Regional income club convergence in US BEA economic areas: a spatial switching regression approach," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 56(1), pages 273-294, January.
    9. Niebuhr, Annekatrin & Schlitte, Friso, 2008. "EU enlargement and convergence: Does market access matter?," HWWI Research Papers 1-16, Hamburg Institute of International Economics (HWWI).
    10. Linda Andersson & Johan Lundberg & Magnus Sjostrom, 2007. "Regional Effects Of Military Base Closures: The Case Of Sweden," Defence and Peace Economics, Taylor & Francis Journals, vol. 18(1), pages 87-97.
    11. Hans-Friedrich Eckey & Reinhold Kosfeld & Matthias Türck, 2007. "Regionale Entwicklung mit und ohne räumliche Spillover-Effekte," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 27(1), pages 23-42, February.
    12. Stephen Dobson & Carlyn Ramlogan & Eric Strobl, 2006. "Why Do Rates Of Β‐Convergence Differ? A Meta‐Regression Analysis," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(2), pages 153-173, May.
    13. Kottaridi, Constantina & Stengos, Thanasis, 2010. "Foreign direct investment, human capital and non-linearities in economic growth," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 858-871, September.
    14. Achille Flora & Roberta Arbolino, 2013. "Divari territoriali e politiche di sviluppo: lo squilibrio territoriale nella regione Campania," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2013(1), pages 55-85.
    15. Eckey, Hans-Friedrich & Türck, Matthias, 2005. "Convergence of EU-regions: A literature report," Volkswirtschaftliche Diskussionsbeiträge 80, University of Kassel, Faculty of Economics and Management.
    16. Kurt Geppert & Andreas Stephan, 2008. "Regional disparities in the European Union: Convergence and agglomeration," Papers in Regional Science, Wiley Blackwell, vol. 87(2), pages 193-217, June.
    17. Stefano Magrini, 2007. "Analysing Convergence through the Distribution Dynamics Approach: Why and how?," Working Papers 2007_13, Department of Economics, University of Venice "Ca' Foscari".
    18. Kwack, Sung Yeung & Lee, Young Sun, 2006. "Analyzing the Korea's growth experience: The application of R&D and human capital based growth models with demography," Journal of Asian Economics, Elsevier, vol. 17(5), pages 818-831, November.
    19. Eckey, Hans-Friedrich & Türck, Matthias, 2007. "Convergence of EU-Regions. A Literature Report," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 10, pages 5-32.
    20. Eckey, Hans-Friedrich & Döring, Thomas & Türck, Matthias, 2006. "Convergence of regions from 23 EU member states," Volkswirtschaftliche Diskussionsbeiträge 86, University of Kassel, Faculty of Economics and Management.

    More about this item

    Keywords

    tax incidence; value added tax; difference-in-differences estimation; natural experiment;
    All these keywords.

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:prf:journl:v:8:y:2014:i:2:p:149-166. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Magdalena Šebková (email available below). General contact details of provider: https://edirc.repec.org/data/vsfspcz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.