Food price responses to VAT changes: Price rigidity perspective from official and online data

Damian Stelmasiak, Karol Szafranek, Paweł Macias and Krzysztof Makarski
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Paweł Macias: Narodowy Bank Polski

No 384, NBP Working Papers from Narodowy Bank Polski

Abstract: This paper explores potential asymmetry and heterogeneity in price responses to two identical VAT shocks of opposite sign. To this end, we study how Polish food retailers reacted to a temporary VAT cut from 5% to 0% in February 2022 and its reversal in April 2024. Combining monthly CPI micro data together with high-frequency (daily) web-scraped prices allows us to identify price adjustments with greater precision and to distinguish immediate reactions from medium-term dynamics. We find that the VAT cut was passed through almost fully and immediately across all retailers via a sharp increase in the frequency of price decreases. By contrast, the VAT increase generated only partial and heterogeneous pass through: among small retailers it was immediate and complete, whereas large retailers raised their prices only modestly on impact and continued to do so with a delay. To rationalize this key asymmetry in prices response, we outline a simple framework in which price hikes trigger psychological menu costs—stemming from consumer loss aversion and customer anger— while price cuts do not, leading to weaker and delayed pass-through of VAT increases.

Keywords: price rigidity; VAT rate change; pass-through; individual prices; web-scraped prices (search for similar items in EconPapers)
JEL-codes: D40 E31 (search for similar items in EconPapers)
Pages: 40
Date: 2026
Note: We would like to thank Statistics Poland for providing access to the micro price data underlying the compilation of the CPI in Poland. We also make use of price data from the E-CPI database. Access to both databases is restricted. The views expressed in this paper are solely ours and do not necessarily reflect the position of Narodowy Bank Polski. This research did not receive any specific grant from funding agencies in the public, commercial, or non-profit sectors. We declare no conflict of interest. All remaining errors are our own.
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:384

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