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Are temporary value-added tax reductions passed on to consumers? Evidence from Germany’s stimulus

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  • Schnitzer, Monika
  • Montag, Felix
  • Sagimuldina, Alina

Abstract

This paper provides the first estimates of the pass-through rate of the ongoing temporary value-added tax (VAT) reduction, which is part of the German fiscal response to COVID-19. Using a unique dataset containing the universe of price changes at fuel stations in Germany and France in June and July 2020, we employ a difference-in-differences strategy and find that pass-through is fast and substantial but remains incomplete for all fuel types. Furthermore, we find a high degree of heterogeneity between the pass-through estimates for different fuel types. Our results are consistent with the interpretation that pass-through rates are higher for customer groups who are more likely to exert competitive pressure by shopping for lower prices. Our results have important implications for the effectiveness of the stimulus measure and the cost-effective design of unconventional fiscal policy.

Suggested Citation

  • Schnitzer, Monika & Montag, Felix & Sagimuldina, Alina, 2020. "Are temporary value-added tax reductions passed on to consumers? Evidence from Germany’s stimulus," CEPR Discussion Papers 15189, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15189
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    References listed on IDEAS

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    1. Youssef Benzarti & Dorian Carloni, 2019. "Who Really Benefits from Consumption Tax Cuts? Evidence from a Large VAT Reform in France," American Economic Journal: Economic Policy, American Economic Association, vol. 11(1), pages 38-63, February.
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    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19 > Economic policy > Household support

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    Cited by:

    1. Maximilian Joseph Blömer & Przemyslaw Brandt & Mosler Martin & Andreas Peichl, 2021. "Verteilungswirkungen des Kinderbonus und der temporären Mehrwertsteuersenkung im Jahr 2020," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 74(02), pages 45-50, February.
    2. Clemens Fuest & Florian Neumeier & Daniel Stöhlker, 2020. "The Pass-Through of Temporary VAT Rate Cuts in German Supermarket Retail," ifo Working Paper Series 341, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. 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.
    4. Gregor, Leonard & Haucap, Justus, 2024. "The Rise of Refinery Margins," VfS Annual Conference 2024 (Berlin): Upcoming Labor Market Challenges 302420, Verein für Socialpolitik / German Economic Association.
    5. Mats Petter Kahl, 2023. "Was the German fuel discount passed on to consumers?," Working Paper Series in Economics 419, University of Lüneburg, Institute of Economics.
    6. Josef Baumgartner & Gabriel Felbermayr & Claudia Kettner-Marx & Angela Köppl & Daniela Kletzan-Slamanig & Simon Loretz & Margit Schratzenstaller-Altzinger, 2022. "Stark steigende Energiepreise – Optionen für eine Entlastung von Haushalten und Unternehmen," WIFO Research Briefs 6, WIFO.
    7. Phil Dean & Maclean Gaulin & Nathan Seegert & Mu-Jeung Yang, 2023. "The COVID-19 state sales tax windfall," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(5), pages 1408-1434, October.
    8. repec:diw:diwwpp:dp2004 is not listed on IDEAS
    9. Matthias Firgo, 2024. "Price effects and pass-through of a VAT increase on restaurants in Germany: causal evidence for the first months and a mega sports event," Papers 2409.01180, arXiv.org.
    10. Simon Loretz & Oliver Fritz, 2021. "Wirkungen der im Zuge der COVID-19-Krise reduzierten Mehrwertsteuersätze. Erfahrungswerte aus rezenten Reformen," WIFO Studies, WIFO, number 67258.
    11. 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

    Pass-through; Value-added taxes; Stimulus; Covid-19;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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