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

See all articles by Alisa Frey

Alisa Frey

Heinrich Heine University Dusseldorf - Duesseldorf Institute for Competition Economics (DICE)

Justus Haucap

Heinrich Heine University Dusseldorf - Department of Economics; German Institute for Economic Research (DIW Berlin)

Date Written: September 10, 2022

Abstract

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

Suggested Citation

Frey, Alisa and Haucap, Justus and Haucap, Justus, VAT Pass-Through: The Case of a Large and Permanent Reduction in the Market for Menstrual Hygiene Products (September 10, 2022). Available at SSRN: https://ssrn.com/abstract=4215425 or http://dx.doi.org/10.2139/ssrn.4215425

Alisa Frey

Heinrich Heine University Dusseldorf - Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Justus Haucap (Contact Author)

Heinrich Heine University Dusseldorf - Department of Economics ( email )

Duesseldorf
Germany

HOME PAGE: http://www.dice.uni-duesseldorf.de

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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