VAT Cuts as Emergency Policy Intervention: Evidence from the UK Case

Luisanna Onnis, Claudio A. Piga (), Maurizio Conti () and Anna Bottasso ()
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Claudio A. Piga: Department of Economics, University of Genoa
Maurizio Conti: Department of Economics, University of Genoa
Anna Bottasso: Department of Economics, University of Genoa

No E2025/4, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: In July 2020, the UK government reduced the VAT rate on hospitality services from 20% to 5% as an emergency policy intervention. Using a novel dataset of detailed hotel room characteristics in the UK and elsewhere, we estimate how much of the tax cut was passed on to consumers via a price reduction. We find a statistically significant contemporaneous pass-through to hotel room prices that varies between approximately 20% and 50%, with a peak effect observed in the second week after the reform. However, the pass-through effect is discretionary, as discounts were negligible for rooms sold two months after the policy introduction.

Keywords: VAT Cut; Pass-Through; Hospitality (search for similar items in EconPapers)
JEL-codes: H22 H25 L83 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2025-02
New Economics Papers: this item is included in nep-eur, nep-pbe and nep-pub
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