Seminar: Estimating VAT Pass Through

Time: 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague

Presentation: Ruud de Mooij (IMF)

Discussant: Arjan Lejour (CPB)

Language: English

Registration: Please register by sending an email to seminars@cpb.nl.

Abstract subject:
This paper estimates the dynamic pass through of VAT changes to consumer prices, using a unique dataset providing disaggregated, monthly data on prices and VAT rates of 17 Euro zone countries over 1999-2013. These differ markedly across types of VAT change. Final pass through of changes in the standard rate, for instance, is about 100 percent, that of reduced rates significantly less, at around 30 percent, and that of reclassifications essentially zero. We also find differing dynamics of pass through for durables and non-durables, no significant difference in pass though between rate increases and decreases, unexpected signs of non-monotonicity in the relationship between pass through and the breadth of the consumption base affected, and signs of significant anticipation effects together with some evidence of lagged effects in the two years around reform. The results, we argue, are robust against endogeneity and attenuation bias.

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