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Indirect taxation in consumer search markets: The case of retail fuel

Author

Listed:
  • Fischer, Kai
  • Martin, Simon
  • Schmidt-Dengler, Philipp

Abstract

When consumers have heterogeneous access to price information, they face different observed price distributions and possibly different effective pass-through rates. We estimate a model of consumer search using data from the German retail fuel market. We find that informed consumers face higher effective pass-through rates, with important distributional implications for regulatory and tax policies. Lowering the VAT rate from 19% to 16% decreases transaction prices by 1.6% on average, but disproportionally benefits consumers in high-income markets. A tax-revenue-equivalent excise tax reduction would have benefited consumers more than a VAT cut, thus extending results in public economics to markets with imperfect information.

Suggested Citation

  • Fischer, Kai & Martin, Simon & Schmidt-Dengler, Philipp, 2024. "Indirect taxation in consumer search markets: The case of retail fuel," CEPR Discussion Papers 19095, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:19095
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    File URL: https://cepr.org/publications/DP19095
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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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