Indirect taxation in consumer search markets: The case of retail fuel

Kai Fischer, Simon Martin and Philipp Schmidt-Dengler

No 19095, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: When consumers have heterogeneous access to price information, they face different observed price distributions and possibly different effective pass-through rates. We estimate a model of consumer search using data from the German retail fuel market. We find that informed consumers face higher effective pass-through rates, with important distributional implications for regulatory and tax policies. Lowering the VAT rate from 19% to 16% decreases transaction prices by 1.6% on average, but disproportionally benefits consumers in high-income markets. A tax-revenue-equivalent excise tax reduction would have benefited consumers more than a VAT cut, thus extending results in public economics to markets with imperfect information.

JEL-codes: D22 D83 H21 L11 L15 L81 (search for similar items in EconPapers)
Date: 2024-05
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