The Pass-Through of Temporary VAT Rate Cuts: Evidence from German Supermarket Retail

COVID-19 in Indonesia

“…In order to increase spending, the tax rate cut must, first, reduce consumer prices and, second, the price reduction must stimulate demand. An almost complete pass-through was seen in the German supermarket retail sector, where prices dropped by nearly 2% (Fuest et al, 2020), but this was not seen in the hotel and restaurant sectors. 26 The pass-through for fuel at gas stations was immediate, but incomplete, ranging between 40% and 83% in the month after the introduction of the VAT cut (Montag et al, 2020).…”

VAT Pass-Through: The Case of a Large and Permanent Reduction in the Market for Menstrual Hygiene Products

“…Weyl & Fabinger (2013) find that it is ambiguous whether pass-through under monopoly is higher or lower than pass-through under perfect competition. Fuest et al (2021) found evidence that in product markets with only a few suppliers the price decrease by a temporary VAT rate cut was less pronounced than in product markets with many suppliers.…”

“…However, these studies mostly focus on the VAT change as a fiscal instrument (e.g., Blundell (2009) and Crossley et al (2009) on the UK temporary VAT cut in 2008 and. Also, in recent studies the VAT decrease is analyzed foremost in terms of the intended stimulus, like the temporary VAT reduction during the pandemic in Germany in 2020 (Montag et al (2021) and Fuest et al (2021)).…”

The (Non-)Neutrality of Value-Added Taxation

“…Benzarti and Carloni (2019) exploit a temporary VAT reduction in France on restaurant visits and find that firm owners benefit most while consumers benefit least due to an incomplete pass-through. Fuest et al (2020) illustrate an almost full pass-through of a temporary VAT cut in Germany. Thus, the public finance literature illustrates that VAT rate changes should not be expected to be neutral as consumer prices change significantly.…”