Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

Abstract: We study price and volume effects of VAT reductions for period products. We exploit varying treatment intensities and timing in several European countries and find that in response to a one percentage point reduction in the VAT, prices decrease by 0.55% in the following 12 months. Pass-through rates range from full pass-through to over-shifting 12 months post policy change, with low-income households benefiting the most. While the average effect on aggregate purchase volumes is statistically zero, low income households’ demand is stimulated. We find evidence that households purchase higher quality products as a result of the tax reform.

Keywords: tax pass-through, VAT reduction, tampon tax, scanner data, tax incidence

JEL-codes: H2; H31; H22; D12 December 2023

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