Can VAT Cuts and Anti-Profiteering Measures Dampen the Effects of Food Price Inflation?

Youssef Benzarti, Santiago Garriga and Dario Tortarolo

No 32241, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper estimates the effect of a temporary and large (21 p.p.) value-added tax (VAT) cut along with anti-profiteering measures on food necessities during a period of high inflation in Argentina. Using barcode-level data across more than 3,000 supermarkets, we find that (1) absent the anti-profiteering measures, the pass-through of the temporary VAT cut to prices was asymmetric: prices responded less to the VAT cut than its repeal resulting in prices that were higher than their pre-VAT cut levels; (2) imposing anti-profiteering measures, such as setting a ceiling on price increases, led to symmetric pass-through rates. Using a household welfare model, we show that the VAT cut resulted in progressive welfare effects and that the anti-profiteering measures were successful at dampening the regressive welfare effects of the asymmetric pass-through. However, we show that these policies benefited high-income households more because pass-through rates are more asymmetric in independent grocery stores, which is precisely where low-income households tend to shop the most.

JEL-codes: H0 (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-agr, nep-pbe and nep-pub
Note: PE
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