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The role of indirect taxes in euro area inflation and its outlook

Author

Listed:
  • Koester, Gerrit
  • Dreher, Ferdinand
  • Vlad, Aurelian

Abstract

This box reviews the impact of changes in indirect taxes on inflation developments in the euro area. In the past, increases in indirect taxes have tended to contribute positively to inflation in the euro area. However, the recent reductions in indirect taxes in response to the coronavirus (COVID-19) pandemic in several euro area countries, in particular in Germany, have not been seen before in the euro area on this scale. The impact they will have on inflation is surrounded by considerable uncertainty, but overall the pass-through is likely to be incomplete and to vary across sectors. In this respect, the September 2020 staff projections expect only a quite limited pass-through. The effects are nevertheless large enough to imply a slight V-shape profile for underlying inflation excluding the effects of changes in indirect taxes concealed in the annual numbers for HICPX, as well as a gradual increase between 2020 and 2022. JEL Classification: E31, H22, E37

Suggested Citation

  • Koester, Gerrit & Dreher, Ferdinand & Vlad, Aurelian, 2020. "The role of indirect taxes in euro area inflation and its outlook," Economic Bulletin Boxes, European Central Bank, vol. 6.
    • Handle: RePEc:ecb:ecbbox:2020:0006:6
    Note: 3015628
    as

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    More about this item

    Keywords

    Indirect taxes; Inflation;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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