VAT pass-through and competition: Evidence from the Greek islands

Lydia Dimitrakopoulou, Christos Genakos, Themistoklis Kampouris and Stella Papadokonstantaki

International Journal of Industrial Organization, 2024, vol. 97, issue C

Abstract: We examine how competition affects VAT pass-through in isolated oligopolistic markets as defined by the Greek islands. Using daily gasoline prices and a difference-in-differences methodology, we investigate how changes in VAT rates are passed through to consumers in islands with different market structure. We show that pass-through increases with competition, going from 50% in monopoly to around 80% in more competitive markets, but remains incomplete. We also discover a rapid rate of adjustment for VAT changes, as well as a positive relationship between competition and the rate of price adjustment. Finally, we document higher pass-through for products with more inelastic demand.

Keywords: Pass-through; Tax incidence; Gasoline; Value added tax (VAT); Market structure; Competition; Greek islands (search for similar items in EconPapers)
JEL-codes: H22 L1 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:97:y:2024:i:c:s0167718724000651

DOI: 10.1016/j.ijindorg.2024.103110

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