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I would if I could: Passing through VAT reductions in the german rail industry

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  • Sieg, Gernot
  • Wessel, Jan

Abstract

Germany’s state-owned train operator Deutsche Bahn made a credible pledge to completely pass through a VAT reduction to passengers. Using a price observation dataset, we find that pass-through rates for fixed-price tickets are indeed 100%, whereas pass-through rates for tickets with revenue-management-based prices can differ significantly from 100%. They vary over purchase-timing periods, departure weekdays, departure timeframes, and price levels, thereby indicating that revenue management systems can cause unequal pass-through to different customer groups. We also provide theoretical insights into the price-setting considerations of offering these two ticket types, and derive the monopoly pass-through rate for ad valorem taxes.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:ecotra:v:32:y:2022:i:c:s2212012222000375
    DOI: 10.1016/j.ecotra.2022.100286
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    1. 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).

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    More about this item

    Keywords

    VAT reduction; Pass-through rates; Fixed prices; Revenue-management prices; Passenger rail transport;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General

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