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VAT Pass-Through and Competition: Evidence from the Greek Islands

Author

Listed:
  • Lydia Dimitrakopoulou
  • Christos Genakos
  • Themistoklis Kampouris
  • Stella Papadokonstantaki

Abstract

We examine how competition affects VAT pass-through in isolated oligopolistic markets as defined by the Greek islands. Using daily gasoline prices and a difference-in-differences methodology, we investigate how changes in VAT rates are passed through to consumers in islands with different market structure. We show that pass-through increases with competition, going from 50% in monopoly to around 80% in more competitive markets, but remains incomplete. We also discover a rapid rate of adjustment for VAT changes, as well as a positive relationship between competition and the rate of price adjustment. Finally, we document higher pass-through for products with more inelastic demand.

Suggested Citation

  • Lydia Dimitrakopoulou & Christos Genakos & Themistoklis Kampouris & Stella Papadokonstantaki, 2023. "VAT Pass-Through and Competition: Evidence from the Greek Islands," Discussion Papers of DIW Berlin 2039, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp2039
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    3. Kinnl, Klara & Wohak, Ulrich, 2023. "Free the Period? Evaluating Tampon Tax Reforms Using Household Scanner Data," Department of Economics Working Paper Series 356, WU Vienna University of Economics and Business.
    4. 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; tax incidence; gasoline; Value added tax (VAT); market structure; competition; Greek islands;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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