Heterogeneous pass-through over space and time: The case of Germany's fuel tax discount

Manuel Frondel, Patrick Thiel and Colin Vance

No 1087, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: Exploiting exogenous variation in retail fuel prices from a temporary fuel tax discount in Germany, we estimate how the pass-through of the discount varies over space and time. We draw on daily gasoline prices of virtually all gas stations in Germany and neighboring France, with France serving as a control, and estimate an event study model covering the full period of the discount from June to August 2022. We find average pass-through rates on the order of 87% for diesel and 71% for petrol, but with substantially lower rates in high-income regions and in regions with a low degree of competition. More strikingly, our results suggest pronounced heterogeneity over time: The magnitude of the pass-through rate dissipates sharply over the three months in which the discount was in effect, dropping to 50% by the final month, a pattern consistent with retailer responses to short-term changes in consumer attention. Taken together, our results indicate that average pass-through estimates may obscure a high degree of spatial and temporal heterogeneity that bears upon the assessment of competition and distributional effects: While our estimation of the budgetary costs of the discount confirms the government's a priori estimate of €3.1 billion, we find that about 61% of the discount's financial relief accrues to households with above-median incomes.

Keywords: Competition; demand elasticity; fuel tax discount; gasoline market (search for similar items in EconPapers)
JEL-codes: D43 L13 L81 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ene, nep-ind, nep-inv and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:300564

DOI: 10.4419/96973262

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