The pass-through of temporary VAT rate cuts: evidence from German supermarket retail

Clemens Fuest, Florian Neumeier () and Daniel Stöhlker ()
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Florian Neumeier: ifo Institute, University of Munich, CESifo
Daniel Stöhlker: ifo Institute, University of Munich, Munich Graduate School

International Tax and Public Finance, 2025, vol. 32, issue 1, No 2, 97 pages

Abstract: Abstract We study the price effects of a temporary VAT reduction in Germany using a web-scraped dataset of daily prices of more than 60000 supermarket products. For causal identification, we compare the development of German prices to those in Austria. We find that the reduction of VAT rates led to a price decrease of 1.3%, implying that 70% of the tax cut were passed on to consumers. Moreover, the pass-through is higher for vertically integrated products (private label) than for independent brands. This is consistent with menu cost theories and theories predicting that price markups act as a buffer for cost shocks.

Keywords: Value added tax; Tax incidence; Fiscal policy; Price effects; Market structure (search for similar items in EconPapers)
JEL-codes: E31 H22 H25 (search for similar items in EconPapers)
Date: 2025
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Working Paper: The Pass-Through of Temporary VAT Rate Cuts: Evidence from German Supermarket Retail (2021)
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DOI: 10.1007/s10797-023-09824-7

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