(October 1, 2015)

On September 30, 2015 International Monetary Fund published IMF Working Paper WP/15/214 titled: “Estimating VAT Pass Through”. The working paper was drafted by Dora Benedek, Ruud De Mooij, Michael Keen and Philippe Wingender.

The document starts with providing a following abstract/summary:

“This paper estimates the pass through of VAT changes to consumer prices, using a  unique dataset providing disaggregated, monthly data on prices and VAT rates for 17 Eurozone countries over 1999-2013. Pass through is much less than full on average, and differs markedly across types of VAT change. For changes in the standard rate, for instance, final pass through is about 100 percent; for reduced rates it is significantly less, at around 30 percent; and for reclassifications it is essentially zero. We also find: differing dynamics of pass through for durables and non-durables; no significant difference in pass through between rate increases and decreases; signs of non-monotonicity in the relationship between pass through and the breadth of the consumption base affected; and indications of significant anticipation effects together with some evidence of lagged effects in the two years around reform. The results are robust against endogeneity and attenuation bias.”

The report discusses a.o. the following subjects: 

·        Methodology

A.      Theory

B.      Empirical Model

C.      Data and Estimation

·        Results

A.      Average VAT Pass Through

B.      Pass Through by Type of VAT Change

C.      Pass Through and Durable Consumption

D.      Pass Through and Scope of VAT Reform

E.       Asymmetric Responses? Pass Through for Rate Increases and Decreases

·        Robustness

A.      Measurement Error

B.      Endogeneity

In addition to the abstract/summary as provided by the working paper, we would like to highlight a sentence that is included in the conclusion of the working paper:

“Contrary, however, to a popular conception, and some previous evidence, there seems no systematic tendency for pass through to be greater for tax increases than for tax cuts.”

Click here to be forwarded to the publication as published by the International Monetary Fund (IMF).

Click here to be forwarded to the IMF Working Paper WP/15/214 titled “Estimating VAT Pass Through” as published by the International Monetary Fund (IMF).

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