CPB Discussion Paper 368, 22 November 2017

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 specification, we find close to full pass-through of the VAT cut into lower prices. However, we find no statistically or economically signicant effect on the volume of sales or employment.