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

Tuomas Kosonen, Youssef Benzarti, Dorian Carloni and Jarkko Harju

No 317, Working Papers from Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE

Abstract: This paper shows that prices respond more to increases than to decreases in Value-Added Taxes (VATs). First, using all VAT reforms from 1996 to 2015 across all European countries we show that prices respond 3 to 4 times more to VAT increases than decreases. Second, using a plausibly exogenous VAT reform, we show that the asymmetry persists over several years. Third, we document several empirical features of this asymmetry that are inconsistent with the standard incidence model. We provide evidence consistent with firm behavior driving the asymmetry. Additionally, according to our empirical results, due to asymmetric pass-through to prices, firms benefit from VAT changes to opposite directions in the form of higher profits.

Keywords: value-added taxes; incidence; redistribution; asymmetry (search for similar items in EconPapers)
JEL-codes: H20 H22 H23 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2017-10-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

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https://labore.fi/wp-content/uploads/2017/10/Tyopapereita-317.pdf First version, 2017 (application/pdf)

Related works:
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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Persistent link: https://EconPapers.repec.org/RePEc:pst:wpaper:317

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