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Price Effects of Temporary VAT Rate Cuts: Evidence from Spanish Supermarkets

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Abstract

The Spanish government has implemented a temporary VAT rate cut on basic food products as part of its anti-inflationary measures to protect households' purchasing power. Starting from January 2023, and for six months, bread, flour, milk, cheese, eggs, fruits, vegetables, legumes, tubers and cereals are taxed at a 0% VAT rate (down from 4%), while pasta and cooking oil are subject to a new super-reduced rate of 5% (down from 10%). This paper analyses the extent to which such measure led to an effective reduction in final consumer prices. This is done by comparing the prices of affected products in Spain with those in Germany, where such measure has not been taken. Our results suggest that the prices of products concerned have dropped significantly in January 2023, indicating a high pass-through to consumer prices, and therefore an effective application of the policy reform.

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  • AMORES Antonio F. & BARRIOS Salvador & SPEITMANN Raffael & STOEHLKER Daniel, 2023. "Price Effects of Temporary VAT Rate Cuts: Evidence from Spanish Supermarkets," JRC Research Reports JRC132542, Joint Research Centre.
    • Handle: RePEc:ipt:iptwpa:jrc132542
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    Keywords

    Tax policy; pass-through analysis; inflation;
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