VAT Pass-Through: The Case of a Large and Permanent Reduction in the Market for Menstrual Hygiene Products
44 Pages Posted: 13 Sep 2022 Last revised: 15 Sep 2022
Date Written: September 10, 2022
This paper is about the price effects caused by a VAT (value-added tax) reduction for menstrual hygiene products in Germany. Several aspects make this VAT reduction particularly interesting: The exogeneity of the reduction under otherwise constant economic conditions, the reduction was substantial and permanent, demand for the products is inelastic and in many cases, pass-through rates are more than 100 percent. We find that the VAT reduction is completely passed through to consumers. Despite this complete pass-through, we still detect a significant effect of retailer competition: When more retailers offer a product, the price reduction is larger.
Keywords: VAT reduction, pass-through, hygiene products, retailer competition
JEL Classification: H22, H25, H32, K34, L81
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