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

Youssef Benzarti, Dorian Carloni, Jarkko Harju and Tuomas Kosonen

No 23849, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper shows that prices respond more 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 than 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 more likely to respond asymmetrically to the VAT changes than firms operating with high profit margins. Fourth, this asymmetry persists several years after the VAT changes take place. Fifth, using all VAT changes in the European Union from 1996 to 2015, we find similar levels of asymmetry.

JEL-codes: H20 H22 H23 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-eur and nep-pbe
Note: PE
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Citations: View citations in EconPapers (49)

Published as Youssef Benzarti & Dorian Carloni & Jarkko Harju & Tuomas Kosonen, 2020. "What Goes Up May Not Come Down: Asymmetric Incidence of Value-Added Taxes," Journal of Political Economy, vol 128(12), pages 4438-4474.

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Journal Article: What Goes Up May Not Come Down: Asymmetric Incidence of Value-Added Taxes (2020)
Working Paper: What Goes Up May Not Come Down: Asymmetric Incidence of Value-Added Taxes (2017)
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