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Robust estimation of the VAT pass-through in the Netherlands

Author

Listed:
  • Martin Mellens

    () (CPB Netherlands Bureau for Economic Policy Analysis)

  • Hendrik Vrijburg

    (EUR)

  • Jonneke Dijkstra

    (EUR)

Abstract

This paper introduces the Common Correlated Effects Estimator into the study of Value-Added-Tax pass-through and compares this method to various other methodologies used in the literature. To this end, we study two Value-Added-Tax increases in the Netherlands, in January 2001 and October 2012. We show that the Common Correlated Effects Estimator produces robust estimates, especially when divergent macroeconomic trends make identification more difficult. Furthermore, we show that the choice of the control group is of lesser importance once sufficient control variables are included. Our results indicate, in accordance with most findings in the literature, that we cannot reject the null-hypothesis of a full pass-through for both Dutch tax-hikes.

Suggested Citation

  • Martin Mellens & Hendrik Vrijburg & Jonneke Dijkstra, 2014. "Robust estimation of the VAT pass-through in the Netherlands," CPB Discussion Paper 297, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:discus:297
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    File URL: http://www.cpb.nl/sites/default/files/publicaties/download/cpb-discussion-paper-297-robust-estimation-vat-pass-through-netherlands.pdf
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    References listed on IDEAS

    as
    1. Richard Blundell, 2009. "Assessing the Temporary VAT Cut Policy in the UK," Fiscal Studies, Institute for Fiscal Studies, vol. 30(1), pages 31-38, March.
    2. Clément Carbonnier, 2005. "Is Tax Shifting Asymmetric? Evidence from French VAT reforms, 1995-2000," PSE Working Papers halshs-00590719, HAL.
    3. Stephan Danninger & Alina Carare, 2008. "Inflation Smoothing and the Modest Effect of VAT in Germany," IMF Working Papers 08/175, International Monetary Fund.
    4. Michael Smart & Richard M. Bird, 2009. "The Economic Incidence of Replacing a Retail Sales Tax with a Value-Added Tax: Evidence from Canadian Experience," Canadian Public Policy, University of Toronto Press, vol. 35(1), pages 85-97, March.
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    Cited by:

    1. repec:bla:obuest:v:79:y:2017:i:5:p:769-796 is not listed on IDEAS
    2. repec:kap:decono:v:166:y:2018:i:2:d:10.1007_s10645-018-9315-1 is not listed on IDEAS
    3. Egbert Jongen & Arjan Lejour & Gabriella Massenz, 2017. "Cheaper and More Haircuts After VAT Cut? Evidence From the Netherlands," CPB Discussion Paper 368, CPB Netherlands Bureau for Economic Policy Analysis.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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