Unit Sales and Price Effects of Pre-announced Consumption Tax Reforms: Micro-level Evidence from European VAT

American Economic Journal: Economic Policy (forthcoming)

78 Pages Posted: 11 Aug 2017 Last revised: 15 Sep 2020

See all articles by Thiess Buettner

Thiess Buettner

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg; CESifo (Center for Economic Studies and Ifo Institute)

Boryana Madzharova

Central Bank of Ireland; University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 1, 2020

Abstract

We study the effects of consumption tax changes on prices and unit sales of durables utilizing micro-level product data. The results show that tax rate changes are fully shifted into prices. An anticipated tax rate change causes a temporary shift in unit sales shortly before implementation, which is more than offset by adjustments upon and after implementation. If the tax rate increases by 1pp., unit sales rise by 2.5% on average in the last month before implementation. The permanent effect is a drop in sales by 2% below their original level, implying relatively strong intertemporal substitution effects.

Keywords: Fiscal Policy; Consumption Tax; Price Pass-Through; Intertemporal Substitution; Durable Goods

JEL Classification: D15, D12, H24, H32, E21, E62

Suggested Citation

Buettner, Thiess and Madzharova, Boryana, Unit Sales and Price Effects of Pre-announced Consumption Tax Reforms: Micro-level Evidence from European VAT (September 1, 2020). American Economic Journal: Economic Policy (forthcoming), Available at SSRN: https://ssrn.com/abstract=3016386 or http://dx.doi.org/10.2139/ssrn.3016386

Thiess Buettner (Contact Author)

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Lange Gasse 20
Nürnberg, Bavaria 90403
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Boryana Madzharova

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Lange Gasse 20
Nuernberg, D-90403
Germany
+49 911 5302-201 (Phone)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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