Indirect taxation in consumer search markets: The case of retail fuel

When consumers have heterogeneous access to information about prices, they face different observed price distributions and thus possibly different effective pass-through rates. We estimate a model of consumer search using data from the German retail fuel market. We find that informed consumers face higher effective pass-through rates, with important distributional implications for regulatory and tax policies. Lowering the VAT rate from 19% to 16% decreases transaction prices by 1.9% on average, but disproportionally benefits consumers in high-income markets. We further show that a tax-revenue-equivalent excise tax reduction would have benefited consumers more than a VAT cut, thus generalizing known results in public economics to markets with imperfect information.