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Supply and Demand Determinants of Heterogeneous VAT Pass-Through

Author

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  • Matthieu Bellon
  • Alexander Copestake
  • Wenzhang Zhang

Abstract

We examine whether VAT pass-through depends on market structure. We extend existing theory to characterize the roles of imperfect competition and product differentiation, then investigate these relationships empirically using a panel of 14 Eurozone countries between 1999 and 2013. Relative to baseline total pass-through of up to 33 percent, we estimate that a one-standard-deviation rise in the competition-friendliness of regulation in upstream markets increases pass-through by up to 22 percentage points, and an equivalent rise in the scope for quality differentiation increases pass-through by up to 38 percentage points.

Suggested Citation

  • Matthieu Bellon & Alexander Copestake & Wenzhang Zhang, 2026. "Supply and Demand Determinants of Heterogeneous VAT Pass-Through," National Tax Journal, University of Chicago Press, vol. 79(3), pages 617-658.
    • Handle: RePEc:ucp:nattax:doi:10.1086/740840
    DOI: 10.1086/740840
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