What Goes Up May Not Come Down: Asymmetric Incidence of Value-Added Taxes

Youssef Benzarti, Dorian Carloni, Jarkko Harju and Tuomas Kosonen

Journal of Political Economy, 2020, vol. 128, issue 12, 4438 - 4474

Abstract: This paper provides evidence that prices respond significantly more strongly to increases than to decreases in value-added taxes (VATs). First, using two plausibly exogenous VAT changes, we show that prices respond twice as much to VAT increases as to VAT decreases. Second, we show that this asymmetry results in higher equilibrium profits and markups. Third, we find that firms operating with low profit margins are particularly likely to respond asymmetrically to VAT changes. Fourth, these asymmetric price effects persist several years after VAT changes take place. Fifth, using all VAT changes in the European Union from 1996 to 2015, we find similar levels of asymmetry.

Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (68)

Downloads: (external link)
http://dx.doi.org/10.1086/710558 (application/pdf)
http://dx.doi.org/10.1086/710558 (text/html)
Access to the online full text or PDF requires a subscription.

Related works:
Working Paper: What Goes Up May Not Come Down: Asymmetric Incidence of Value-Added Taxes (2017)
Working Paper: What Goes Up May Not Come Down: Asymmetric Incidence of Value-Added Taxes (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:jpolec:doi:10.1086/710558

Access Statistics for this article

More articles in Journal of Political Economy from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().