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

61 Pages Posted: 11 Aug 2017 Last revised: 16 Dec 2017

See all articles by Thiess Buettner

Thiess Buettner

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Boryana Madzharova

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Date Written: December 15, 2017

Abstract

This paper studies the effects of consumption tax reforms on prices and the time path of consumption spending in EU countries utilizing micro-level data on the monthly unit sales and prices of consumer durables. The identification strategy exploits the trading of identical products in multiple countries. The results show that tax changes are fully and quickly shifted into prices and strongly affect the time path of consumption. The empirical findings for consumption spending point to a large elasticity of intertemporal substitution and confirm an additional temporary effect on the sales of durables shortly before the tax rate changes.

Keywords: Tax Reform, Fiscal Policy, Consumption Tax, Pass-Through, Tax Incidence, Durable Goods

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

Suggested Citation

Buettner, Thiess and Madzharova, Boryana, Sales and Price Effects of Pre-announced Consumption Tax Reforms: Micro-level Evidence from European VAT (December 15, 2017). 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

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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