Consumer Demand System Estimation and Value Added Tax Reforms in the Czech Republic

Petr Janský

No 2014/07, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: The rates of value added tax (VAT) have recently changed in the Czech Republic, and I simulate the impact of these reforms. They are an example of changes in indirect taxes that change the prices of goods and services, to which households can respond by adjusting their expenditures. I first estimate the behavioural response of consumers to price changes in the Czech Republic by applying a consumer demand model of the quadratic almost ideal system (QUAIDS) on the basis of the Czech Statistical Office household expenditure and price data for the period from 2001 to 2011. I derive estimates of own- and cross-price and income elasticities for individual households. I then use these elasticities to estimate the impact of the changes in VAT rates that were proposed or implemented between 2011 and 2013, on households’ quantity demanded and government revenues. One of the main findings is that the estimated increases in government revenues that take the consumer responses into account are more than a quarter lower than the estimates that use the static simulation.

Keywords: consumer behaviour; demand system; QUAIDS; tax reforms; value added tax (search for similar items in EconPapers)
JEL-codes: D12 H20 H31 (search for similar items in EconPapers)
Pages: 32pages
Date: 2014-04, Revised 2014-04
New Economics Papers: this item is included in nep-pbe and nep-tra
References: Add references at CitEc
Citations: View citations in EconPapers (22)

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Related works:
Journal Article: Consumer Demand System Estimation and Value Added Tax Reforms in the Czech Republic (2014)
Working Paper: Consumer Demand System Estimation and Value Added Tax Reforms in the Czech Republic (2013)
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