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Mr. Matthieu Bellon
We examine the role of market characteristics and timing in explaining observed heterogeneity in VAT pass-through. We first extend existing theory to characterize the roles of imperfect competition and product differentiation, then investigate these relationships empirically using a panel of 14 Eurozone countries between 1999 and 2013. We find important roles for product market regulation and product quality, and little impact of advance announcement of reforms. Our findings have important implications for policy-makers considering VAT rate adjustments, by illuminating which of the consumers or the producers would experience the brunt of a reform across different settings.
Ms. Dora Benedek, Ruud A. de Mooij, and Mr. Philippe Wingender
This paper estimates the pass through of VAT changes to consumer prices, using a unique dataset providing disaggregated, monthly data on prices and VAT rates for 17 Eurozone countries over 1999-2013. Pass through is much less than full on average, and differs markedly across types of VAT change. For changes in the standard rate, for instance, final pass through is about 100 percent; for reduced rates it is significantly less, at around 30 percent; and for reclassifications it is essentially zero. We also find: differing dynamics of pass through for durables and non-durables; no significant difference in pass through between rate increases and decreases; signs of non-monotonicity in the relationship between pass through and the breadth of the consumption base affected; and indications of significant anticipation effects together with some evidence of lagged effects in the two years around reform. The results are robust against endogeneity and attenuation bias.
Ms. Dora Benedek, Ruud A. de Mooij, and Mr. Philippe Wingender

in anticipation of VAT changes, and/or menu costs may mean response is sluggish. 4 The extent and timing of VAT pass through thus become empirical issues—which remain unresolved. Empirical studies report a variety of results, often finding evidence of less than full pass through, 5 though some find evidence for full pass through or overshifting. 6 Instructive and careful as many of these studies are, their generalizability to address some of the most pressing policy and analytical issues is limited. Many of the most careful studies focus on the effects of

Mr. Matthieu Bellon

unchanged, with the benefits of lower VAT accruing disproportionally to the consumer, while zero pass-through implies the opposite. 3 There is a vast literature estimating the impact of VAT changes on prices. Yet, estimates of VAT pass-through to consumer prices can vary greatly across studies. 4 This paper builds on the recent empirical methodology of Benedek, De Mooij, Keen and Wingender (2015, hereafter BDKW) to explain how differences in VAT pass-through can be related to differences in market characteristics. 5 Specifically, we examine the role of market

Rodrigo Mariscal and Alejandro M. Werner

and Location of Cities with CPIs 2. Distribution of Monthly Inflation (NSA) Rate 3. Distribution of Monthly Inflation Rate 4. DID Estimates of VAT Pass-through 5. Distribution of Welfare Loss by Deciles

Ms. Dora Benedek, Ruud A. de Mooij, and Mr. Philippe Wingender

Front Matter Page Fiscal Affairs Department Contents Abstract I. Introduction II. Methodology A. Theory B. Empirical Model C. Data and Estimation III. Results A. Average VAT Pass Through B. Pass Through by Type of VAT Change C. Pass Through and Durable Consumption D. Pass Through and Scope of VAT Reform E. Asymmetric Responses? Pass Through for Rate Increases and Decreases IV. Robustness A. Measurement Error B. Endogeneity V. Conclusion References Tables Table 1: Summary Statistics Table 2: Consumer

Countries Raja Almarzoqi, Sami Ben Naceur, Alessandro Scopelliti Working Paper 15/211 The Impact of Global Liquidity on Financial Landscapes and Risks in the ASEAN-5 Countries Tao Sun Working Paper 15/212 Credit Expansion in Emerging Markets: Propeller of Growth? Mercedes Garcia-Escribano, Fei Han Working Paper 15/213 Domestic Market Integration and the Law of One Price in Brazil Carlos Góes, Troy Matheson Working Paper 15/214 Estimating VAT Pass Through Dora Benedek, Ruud A. de Mooij, Philippe Wingender

Mr. Serhan Cevik

. Keen , and P. Wingender , 2015 , “ Estimating VAT Pass Through, ” IMF Working Paper, No. 15/214 ( Washington : International Monetary Fund ). Besley , T. , and H. Rosen , 1999 , “ Sales Taxes and Prices: An Empirical Analysis, ” National Tax Journal , Vol. 52 , pp. 157 – 178 . Chaloupka , F. , K. Straif , and M. Leon , 2010 , “ Effectiveness of Tax and Price Policies for Tobacco Control, ” Tobacco Control , Vol. 20 , pp. 235 – 238 . Chaloupka , F. , A. Yurekli , and G. Fong , 2012 , “ Tobacco Taxes as a

Rodrigo Mariscal and Alejandro M. Werner
In this paper we analyze the incidence of the VAT and its effects on the income distribution. To identify these effects, we rely on two tax reforms undertaken in Mexico that increased the VAT rate for a group of cities and left the rest unaffected. We compare the inflation rate of the affected cities with the exempted cities before and after the law changed. We find that the effect on prices is limited and conclude that the burden of the tax is indeed shared between producers and consumers. Regarding welfare, we find that the VAT is progressive in both absolute and relative terms to the overall expenditure. Finally, we show that an identical change in the VAT rate when inflation is high and persistent doubles its pass-through to inflation and its welfare loss for the average household.
Mr. Serhan Cevik
This paper estimates the magnitude and speed of tax pass-through across tobacco products at different price points in Pakistan by using a novel dataset of monthly observations on cigarette prices in 50 cities during the period 2004-2015. The pass-through of cigarette taxes to retail prices is found to occur within two months, but is mostly incomplete in magnitude. On average, a one-rupee tax increase is estimated to lead to an increase of only PRs 0.8 in retail cigarette prices. This is driven by the fact that tobacco manufacturers absorb a significant part of the tax increase. For the premium brand, however, I observe full passthrough, indicating possibilities of different demand elasticities across product tiers. These findings are likely to be attributable to competitive market pressures, especially at the budget end of the price spectrum, possibly stemming from changing consumption patterns with greater awareness of health risks as well as the impact of illicit domestic production.