What was actually cut in the barbers' VAT cut?
The tax incidence of consumption taxes across various sectors of the economy is a key aspect when designing a tax structure. However, there are very few empirical findings on this subject. This paper studies the tax incidence of consumption taxes utilising a VAT reform targeted at labour-intensive services in Finland. The reform creates a natural experiment set-up, because the reduced VAT was targeted at hairdressers, whereas the normal tax treatment still applied to beauty salons. This experiment is exogenous to the economic conditions of hairdressers in Finland, since this group was selected in a European Commission Directive. I study the effects of the reform on prices and demand. The results suggest that barbers cut their prices only by half of what complete pass-through would have implied. Using the experiment as an instrument, I find little effect on demand. Thus, there does not seem to be any indication of a significant effect on labour demand.
|Date of creation:||23 Nov 2010|
|Contact details of provider:|| Postal: Arkadiankatu 7, P.O. Box 1279, FI-00101 Helsinki|
Phone: +358 295 519 400
Fax: +358 295 519 599
Web page: http://www.vatt.fi/
More information through EDIRC
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:fer:wpaper:18. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anita Niskanen)
If references are entirely missing, you can add them using this form.