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VAT pass-through and competition: evidence from the Greek Islands

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  • Dimitrakopoulou, Lydia
  • Genakos, Christos
  • Kampouris, Themistoklis
  • Papadokonstantaki, Stella

Abstract

We examine how competition affects VAT pass-through in isolated oligopolistic markets as defined by the Greek islands. Using daily gasoline prices and a difference-in-differences methodology, we investigate how changes in VAT rates are passed through to consumers in islands with different market structure. We show that pass-through increases with competition, going from 50% in monopoly to around 80% in more competitive markets, but remains incomplete. We also discover a rapid rate of adjustment for VAT changes, as well as a positive relationship between competition and the rate of price adjustment. Finally, we document higher pass-through for products with more inelastic demand.

Suggested Citation

  • Dimitrakopoulou, Lydia & Genakos, Christos & Kampouris, Themistoklis & Papadokonstantaki, Stella, 2023. "VAT pass-through and competition: evidence from the Greek Islands," LSE Research Online Documents on Economics 121321, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:121321
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    File URL: http://eprints.lse.ac.uk/121321/
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    2. Fedoseeva, Svetlana & Van Droogenbroeck, Ellen, 2024. "Temporary VAT rate cuts and food prices in e-commerce," Journal of Retailing and Consumer Services, Elsevier, vol. 77(C).

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    More about this item

    Keywords

    pass-through; tax incidence; gasoline; value added tax (VAT); market structure; competition; Greek islands;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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