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

75 Pages Posted: 11 Aug 2017 Last revised: 4 Sep 2019

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

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Date Written: September 1, 2019

Abstract

This paper studies the effects of multiple pre-announced consumption tax changes on prices and unit sales of consumer durables (household appliances) utilizing micro-level product data. The identification strategy exploits the contemporaneous trading of exactly the same product in different countries within the EU Common Market. The results show that tax rate changes are fully shifted into prices, but a third of the pass-through occurs before implementation. An anticipated tax rate change causes a temporary change in unit sales shortly before implementation, which is more than offset by adjustments upon and after implementation. Quantitatively, in response to a 1 percentage point increase of the tax rate, unit sales rise by 2.5% on average in the last month before implementation. The permanent effect is a drop in unit sales by about 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, 2019). 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

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

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

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