GST Reform in Australia: Implications of Estimating Price Elasticities of Demand for Food

Abstract

This paper uses detailed information about household supermarket purchases from the Australian Nielsen Homescan Survey to estimate price elasticities of demand for a range of food categories. An instrumental variable strategy is employed to address endogeneity issues. The estimates obtained from our analysis are used to study five scenarios in which the rate of the goods and services tax (GST) on food categories is increased or in which the tax base is broadened to include currently GST-free categories. Our findings reveal that there is considerable scope for raising revenue by increasing the rate and broadening the tax base.