November 22, 2017

Cheaper and More Haircuts After VAT Cut? Evidence From the Netherlands

We study the effect of the reduction in the VAT rate on services by hairdressers from 17.5 to 6 percent in the Netherlands in January 2000.

Following Kosonen [2015], we use differences-in-differences to estimate the effects of this reform, with beauty salons as the main control group. In our preferred specification, we find close to full pass-through of the VAT cut into lower prices. However, we find no statistically or economically significant effect on the volume of sales or employment.

Contacts

Photo of Egbert Jongen
Egbert Jongen +31 6 50746439 Read more
Photo of Arjan Lejour
Arjan Lejour +31 6 52485843 Read more
Gabriella Massenz Read more