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VAT Cuts as Emergency Policy Intervention: Evidence from the UK Case

Author

Listed:
  • Onnis, Luisanna

    (Cardiff Business School, Cardiff University)

  • Piga, Claudio A.

    (Department of Economics, University of Genoa)

  • Conti, Maurizio

    (Department of Economics, University of Genoa)

  • Bottasso, Anna

    (Department of Economics, University of Genoa)

Abstract

In July 2020, the UK government reduced the VAT rate on hospitality services from 20% to 5% as an emergency policy intervention. Using a novel dataset of detailed hotel room characteristics in the UK and elsewhere, we estimate how much of the tax cut was passed on to consumers via a price reduction. We find a statistically significant contemporaneous pass-through to hotel room prices that varies between approximately 20% and 50%, with a peak effect observed in the second week after the reform. However, the pass-through effect is discretionary, as discounts were negligible for rooms sold two months after the policy introduction.

Suggested Citation

  • Onnis, Luisanna & Piga, Claudio A. & Conti, Maurizio & Bottasso, Anna, 2025. "VAT Cuts as Emergency Policy Intervention: Evidence from the UK Case," Cardiff Economics Working Papers E2025/4, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2025/4
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    More about this item

    Keywords

    VAT Cut; Pass-Through; Hospitality;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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