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Heterogeneity in the tax pass-through to spirit retail prices: Evidence from Belgium

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  • Hindriks, Jean
  • Serse, Valerio

Abstract

On 1st November 2015, the Belgian government increased the excise tax on alcoholic beverages. For spirits with 40% of alcohol and bottle size of 70 cl, this tax change is equivalent to an amount of 2,43 € per bottle of spirits. This paper studies the impact of this tax reform at the store level on the (posted) retail price of six major brands of spirits, using a difference-in-differences method. The estimation is based on a balanced panel of scanner data from a major supermarket chain (with a 33% market share) and uses the retail prices of the same brands sold in France by the same supermarket chain as a control group. Having information on each store location, we show spatial variations in the tax pass-through for homogeneous products. We find that these variations are strongly related to the intensity of local competition and to a lesser extent to the proximity to the borders (mainly with Luxembourg which is the low-price country). We find that the tax was quickly passed through during the first month of tax implementation and that it was mostly over-shifted. However, we also find that both the border and the competition effects are not instantaneous, but arise several months after the tax reform. These findings have important implications for alcohol control policies as they highlight that the incidence of alcohol taxation can vary greatly across space and affect differently households depending on where they live.

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  • Hindriks, Jean & Serse, Valerio, 2019. "Heterogeneity in the tax pass-through to spirit retail prices: Evidence from Belgium," Journal of Public Economics, Elsevier, vol. 176(C), pages 142-160.
  • Handle: RePEc:eee:pubeco:v:176:y:2019:i:c:p:142-160
    DOI: 10.1016/j.jpubeco.2019.06.009
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    Cited by:

    1. Asatryan, Zareh & Gomtsyan, David, 2020. "The incidence of VAT evasion," ZEW Discussion Papers 20-027, ZEW - Leibniz Centre for European Economic Research.
    2. Hindriks, Jean & Serse, Valerio, 2022. "The incidence of VAT reforms in electricity markets: Evidence from Belgium," International Journal of Industrial Organization, Elsevier, vol. 80(C).
    3. Klara Kinnl & Ulrich Wohak, 2023. "Free the Period? Evaluating Tampon Tax Reforms Using Household Scanner Data," Department of Economics Working Papers wuwp356, Vienna University of Economics and Business, Department of Economics.
    4. Kinnl, Klara & Wohak, Ulrich, 2023. "Free the Period? Evaluating Tampon Tax Reforms Using Household Scanner Data," Department of Economics Working Paper Series 356, WU Vienna University of Economics and Business.
    5. Blasco-Arcas, Lorena & Lee, Hsin-Hsuan Meg & Kastanakis, Minas N. & Alcañiz, Mariano & Reyes-Menendez, Ana, 2022. "The role of consumer data in marketing: A research agenda," Journal of Business Research, Elsevier, vol. 146(C), pages 436-452.
    6. Harju, Jarkko & Kosonen, Tuomas & Laukkanen, Marita & Palanne, Kimmo, 2022. "The heterogeneous incidence of fuel carbon taxes: Evidence from station-level data," Journal of Environmental Economics and Management, Elsevier, vol. 112(C).
    7. Gehrsitz, Markus & Saffer, Henry & Grossman, Michael, 2021. "The effect of changes in alcohol tax differentials on alcohol consumption," Journal of Public Economics, Elsevier, vol. 204(C).
    8. SERSE Valerio,, 2019. "Do sugar taxes affect the right consumers ?," LIDAM Discussion Papers CORE 2019017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    9. Shiraishi, Kosuke, 2022. "Determinants of VAT pass-through under imperfect competition: Evidence from Japan," Japan and the World Economy, Elsevier, vol. 61(C).
    10. Sieg, Gernot & Wessel, Jan, 2022. "I would if I could: Passing through VAT reductions in the german rail industry," Economics of Transportation, Elsevier, vol. 32(C).
    11. Clemens Fuest & Florian Neumeier & Daniel Stöhlker, 2021. "The Pass-Through of Temporary VAT Rate Cuts: Evidence from German Supermarket Retail," CESifo Working Paper Series 9149, CESifo.
    12. Bokhari, Farasat A.S. & Dobson, Paul W. & Morciano, Marcello & Suhrcke, Marc, 2023. "Banning volume discounts to curb excessive consumption: A cautionary tale," European Economic Review, Elsevier, vol. 156(C).
    13. Luke B. Wilson & Robert Pryce & Colin Angus & Rosemary Hiscock & Alan Brennan & Duncan Gillespie, 2021. "The effect of alcohol tax changes on retail prices: how do on-trade alcohol retailers pass through tax changes to consumers?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 22(3), pages 381-392, April.
    14. Nelson Jon P. & Moran John R., 2020. "Effects of Alcohol Taxation on Prices: A Systematic Review and Meta-Analysis of Pass-Through Rates," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(1), pages 1-21, January.

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    More about this item

    Keywords

    Tax pass-through; Scanner data; Competition; Cross-border shopping;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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