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
Date Written: December 15, 2017
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
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