Are temporary value-added tax reductions passed on to consumers? Evidence from Germany’s stimulus

Monika Schnitzer (), Felix Montag and Alina Sagimuldina

No 15189, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper provides the first estimates of the pass-through rate of the ongoing temporary value-added tax (VAT) reduction, which is part of the German fiscal response to COVID-19. Using a unique dataset containing the universe of price changes at fuel stations in Germany and France in June and July 2020, we employ a difference-in-differences strategy and find that pass-through is fast and substantial but remains incomplete for all fuel types. Furthermore, we find a high degree of heterogeneity between the pass-through estimates for different fuel types. Our results are consistent with the interpretation that pass-through rates are higher for customer groups who are more likely to exert competitive pressure by shopping for lower prices. Our results have important implications for the effectiveness of the stimulus measure and the cost-effective design of unconventional fiscal policy.

Keywords: Pass-through; Value-added taxes; Stimulus; Covid-19 (search for similar items in EconPapers)
JEL-codes: E62 H22 H32 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (12)

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