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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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    References listed on IDEAS

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    Cited by:

    1. Michael Savage, 2016. "Indirect tax reform and the specification of demand: the case of Ireland," International Tax and Public Finance, Springer;International Institute of Public Finance, pages 368-399.
    2. Jan Babecky & Lubos Komarek & Zlatuse Komarkova, 2013. "Financial Integration at Times of Financial Instability," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(1), pages 25-45, March.
    3. repec:ris:utmsje:0200 is not listed on IDEAS
    4. 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.

    More about this item

    Keywords

    consumer behaviour; demand system; QUAIDS; value added tax; Czech Republic;

    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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