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 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.

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