VAT Pass-Through: The Case of a Large and Permanent Reduction in the Market for Menstrual Hygiene Products

57 Pages Posted: 13 Sep 2022 Last revised: 5 Oct 2023

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 examines the price effects of a VAT (value-added tax) reduction for
menstrual hygiene products in Germany. Several aspects make this VAT reduction
particularly interesting: The reduction is exogenous to economic conditions, the
reduction was substantial and permanent, and demand can be assumed to be
inelastic. We find that the VAT reduction was completely passed through to
consumers. In fact, pass-through rates of significantly more than 100 percent
can be observed. We find that the excess pass-through occurred in relatively
competitive market segments, and that it is almost fully explained by retailers
rounding down prices after the reduction.

Keywords: VAT reduction, pass-through, hygiene products, retailer competition, rounding effects

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 (Contact Author)

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

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Justus Haucap

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 )

Mohrenstraße 58
Berlin, 10117
Germany

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