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Consumer Demand System Estimation and Value Added Tax Reforms in the Czech Republic

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  • Petr Jansky

    (Institute for Fiscal Studies and Charles University)

Abstract

Reforms of indirect taxes, such as the recent changes in rates of value added tax (VAT) in the Czech Republic, change prices of products and services to which households can respond by adjusting their expenditures. I estimate the behavioural response of consumers to price changes in the Czech Republic applying a consumer demand model of the quadratic almost ideal system (QUAIDS) form to the Czech Statistical Office data for the period from 2001 to 2011. I then derive the estimates of own- and cross-price and income elasticities and I use these to estimate the impact of changes in VAT rates, which were proposed or implemented between 2011 and 2013, on households and government revenues. I further find that this method, which allows for behavioural response, yields lower estimates of changes in VAT revenues than when I use the standard static simulation. These relatively small, but statistically significant differences might partly explain the past cases, and might lead to future cases, of the over-estimation of VAT revenues by the Ministry of Finance of the Czech Republic.

Suggested Citation

  • Petr Jansky, 2013. "Consumer Demand System Estimation and Value Added Tax Reforms in the Czech Republic," IFS Working Papers W13/20, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:13/20
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    Cited by:

    1. Karel Janda & Zuzana Lajksnerová & Jakub Mikolášek, 2019. "A General Equilibrium Model of Optimal Alcohol Taxation in the Czech Republic," Prague Economic Papers, Prague University of Economics and Business, vol. 2019(5), pages 589-611.
    2. Peter Tóth & Andrej Cupák & Marian Rizov, 2021. "Measuring the efficiency of VAT reforms: a demand system simulation approach," Oxford Economic Papers, Oxford University Press, vol. 73(3), pages 1218-1243.
    3. Petr JANSKÝ, 2016. "Impact of the changes in excise duties on households in the Czech Republic," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 62(2), pages 51-61.
    4. Andrej Cupak & Jan Pokrivcak & Marian Rizov, 2016. "Demand for Food Away from Home in Slovakia," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(4), pages 354-369, August.
    5. repec:prg:jnlpep:v:preprint:id:706:p:1-23 is not listed on IDEAS
    6. Molnár, György & Cseres-Gergely, Zsombor & Szabó, Tibor, 2016. "Pénzt vagy életet?. Empirikus eredmények néhány gazdaságpolitikai beavatkozás heterogén jóléti hatásairól [For money or for life?. Empirical findings on the heterogenous welfare effects of some eco," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 901-943.
    7. Tatiana Chudá & Petr Janský, 2016. "The Impact of a Fat Tax: Progressive in Health, but Regressive in Income?," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(4), pages 445-458.
    8. Matěj Bajgar & Petr Janský, 2015. "Skutečná kupní síla v krajích České republiky: zohlednění regionální cenové hladiny a struktury pracovní síly [Purchasing Power in the Regions: Reflecting Price Levels and Employment Structures]," Politická ekonomie, Prague University of Economics and Business, vol. 2015(7), pages 860-876.
    9. Braha, Kushtrim & Cupak, Andrej & Qineti, Artan & Pokrivcak, Jan, 2018. "Food Demand System in Transition Economies: Evidence from Kosovo," 162nd Seminar, April 26-27, 2018, Budapest, Hungary 272050, European Association of Agricultural Economists.
    10. Lapinskas, Arunas & Makhova, Larisa & Haikin, Mark & Troyanskaya, Marija & Mutalimov, Verdi, 2023. "Longevity of EU membership and VAT practices: Dependencies, Contradictions And Implications," Journal of Policy Modeling, Elsevier, vol. 45(3), pages 630-643.
    11. Thomas, Alastair, 2019. "Who Would Win from a Multi-rate GST in New Zealand: Evidence from a QUAIDS Model," Working Paper Series 8127, Victoria University of Wellington, Chair in Public Finance.
    12. Javier García-Enríquez & Cruz A. Echevarría, 2018. "Demand for culture in Spain and the 2012 VAT rise," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 42(3), pages 469-506, August.
    13. Arkadiusz Bernal, 2018. "The Value Added Tax Incidence – the Case of the Book Market in CEE Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(2), pages 144-164, April.
    14. Javier García-Enríquez & Cruz A. Echevarría, 2016. "Consistent Estimation of a Censored Demand System and Welfare Analysis: The 2012 VAT Reform in Spain," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(2), pages 324-347, June.
    15. Zsombor Cseres-Gergely & Gyorgy Molnar & Tibor Szabo, 2017. "Expenditure responses, policy interventions and heterogeneous welfare effects in Hungary during the 2000s," CERS-IE WORKING PAPERS 1704, Institute of Economics, Centre for Economic and Regional Studies.
    16. Kamil Dybczak & Peter Tóth & David Voòka, 2014. "Effects of Price Shocks on Consumer Demand: Estimating the QUAIDS Demand System on Czech Household Budget Survey Data," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(6), pages 476-500, December.
    17. Wu, Qingchuan & Gong, Yuanyuan & Yan, Zhijuan, 2021. "Whether the policy of RBTVAT has promoted the expansion of UCIBs: Quasi-natural experiment based on new statistical scope data," International Review of Financial Analysis, Elsevier, vol. 77(C).
    18. Anna Kowal & Grzegorz Przekota, 2021. "VAT Efficiency—A Discussion on the VAT System in the European Union," Sustainability, MDPI, vol. 13(9), pages 1-16, April.
    19. Petr Janský & Klára Kalíšková & Daniel Münich, 2016. "Does the Czech Tax and Benefit System Contribute to One of Europe’s Lowest Levels of Relative Income Poverty and Inequality?," Eastern European Economics, Taylor & Francis Journals, vol. 54(3), pages 191-207, May.
    20. Hodzic, Sabina & Celebi, Hulya, 2017. "Value-Added Tax And Its Efficiency: Eu–28 And Turkey," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 8(2), pages 79-90.
    21. Gostkowski Michał, 2018. "Elasticity of Consumer Demand: Estimation Using a Quadratic Almost Ideal Demand System," Econometrics. Advances in Applied Data Analysis, Sciendo, vol. 22(1), pages 68-78, March.

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    More about this item

    Keywords

    consumer behaviour; demand system; QUAIDS; value added tax; Czech Republic;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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