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Temporary VAT rate cuts and food prices in e-commerce

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  • Fedoseeva, Svetlana
  • Van Droogenbroeck, Ellen

Abstract

Since the onset of the COVID-19 pandemic in 2020, temporary VAT cuts have gained popularity as an unconventional fiscal policy tool. The effectiveness of these stimuli in reaching the intended recipients depends on a VAT cut pass-through to consumer prices; however, the empirical evidence, particularly in digital markets, is scarce. The aim of our paper is to measure the price shift in e-commerce following the VAT rate reduction and test whether this effect was consistent across different types of retailers, exploiting detailed daily price data from the six largest German online full-assortment grocery retailers. Our findings indicate that multichannel retailers passed on the VAT cut almost completely, whereas online-only retailers made fewer price changes. This discrepancy has significant implications for the effectiveness of temporary VAT cuts, as the reluctance of large online-only sellers to pass on VAT cuts to consumers could hinder the efficacy of this unconventional fiscal stimulus. Keywords: temporary tax reduction, value-added tax, digital markets, food markets, COVID-19.

Suggested Citation

  • Fedoseeva, Svetlana & Van Droogenbroeck, Ellen, 2024. "Temporary VAT rate cuts and food prices in e-commerce," Journal of Retailing and Consumer Services, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:joreco:v:77:y:2024:i:c:s0969698923004447
    DOI: 10.1016/j.jretconser.2023.103693
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