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Cover IMF Working Papers
Front Matter
Ms. Dora Benedek, Ruud A. de Mooij, and Mr. Philippe Wingender

Price Elasticities Table 3: Regression Results of Pass Through by Type of VAT Rate Change Table 4: Pass Through for VAT Increases and Decreases Table 5: Pass Through by Type of VAT Rate Change – OLS Estimates Table 6: Pass Through by Type of VAT Rate Change – IV Estimates Table 7: Pass Through During Fiscal Consolidation Episodes Table A1. Country List and VAT Reforms Table A2. Consumption Categories Figures Figure 1: Elasticity of Price Responses in Two-Year Interval around the VAT Change Figure 2: Cumulative Pass Through by Type of VAT Rate

Keywords:
WP; VAT rate change; consumer spending; confidence interval; VAT reform
Cover IMF Working Papers
The Price and Welfare Effects of The Value-Added Tax: Evidence from Mexico1
Rodrigo Mariscal and Alejandro M. Werner

. In the end, Congress raised the overall VAT rate from 15 to 16 percent, and the rate in the border cities went from 10 to 11 percent. 8 There were other policies implemented at the time when the VAT reforms passed, especially in 1995 during the Mexican Crisis (see IMF Staff Reports for 1995 and 1996). We also note that other changes in the Tax Law passed beside the VAT rate change. For example, in 2014 the Government include pets, pet’s food and bubble gum in the VAT when they used to be exempted; the same happened in 1995 with sweetened beverages (sodas and

Keywords:
WP; inflation rate; price index; center city; VAT tax; VAT law; VAT hike; VAT effects of the border; VAT rate change
Cover IMF Working Papers
Estimating VAT Pass Through
Ms. Dora Benedek, Ruud A. de Mooij, and Mr. Philippe Wingender

episodes in the dataset enables us to explore variations in pass through across different types of VAT reform. We look, for instance, not only at the central question of the pass through of standard changes, but also that of changes in reduced VAT rates and of reclassifications (the movement of some item between rate categories). 9 We also test for heterogeneity in pass through depending on the scope of the VAT reform (that is, on the share of consumption affected by a VAT rate change) and for asymmetries in pass through between VAT rate increases and decreases. The

Keywords:
WP; VAT rate change; consumer spending; confidence interval; VAT reform; HICP-CT price series; change regression; share of consumption; price response; category level; consumption basket
Cover IMF Working Papers
Estimating VAT Pass Through
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.
Keywords:
WP; VAT rate change; consumer spending; confidence interval; VAT reform; Value added tax; Tax incidence; Price effect; Pass through; Europe; consumption share; consumption category; cross-price elasticity; Value-added tax; Consumption; Consumer prices; Unemployment rate; Consumption taxes
Cover IMF Staff Country Reports
Front Matter
International Monetary Fund. European Dept.

. Simulation of the Tax Reform Impact FIGURES 1. Sustained Higher Growth is Needed for Income Convergence 2. Rapid Ageing Poses Fiscal and Growth Challenges 3. General Government Revenue Mix 4. International Comparison of Property Tax 5. Tax Wedge and Employment Rate 6. Comparative CIT Revenue 7. CIT Rate and Revenues 8. Countries with VAT Standard Rates Above 20 percent 9. VAT Rate Changes 10. Detailed Simulation Results ANNEXES I. The GIMF Model 11. Taxing SMEs References

Keywords:
ISCR; CR; revenue; property tax; rate; VAT; tax
Cover IMF Working Papers
Can Domestic Policies Influence Inflation?
Mr. Ashoka Mody and Ms. Franziska L Ohnsorge
Globalization operates not only by reducing domestic pressures on inflation but also by reducing the scope of domestic authorities to influence the pace of inflation. First, as markets are integrated, the common, cross-border sources of inflation increase, reducing the extent of domestically-generated inflation. Based on a methodology identifying common time and sectoral trends, we find this to be especially the case in the countries of the eurozone, with their longer histories of product market integration. Second, even the domestically-generated component of inflation may be difficult to manipulate. Policies act, especially in the shortrun, through managing domestic demand. But the relationship between domestic demand (proxied by the output gap and unit labor cost growth) and inflation has been weak, constrained in part by trade openness. Moreover, the domestic component of inflation contains a country-specific international catch-up process that generates price equalization across countries. The evidence is that catch-up has accelerated with increasing market integration. Thus, for the eurozone economies, there may be limits on the use of fiscal and labor market policies to contain inflation. The new member states may not have policy leverage to meet the Maastricht inflation limit necessary for entering the eurozone. Casestudies show that fiscal consolidation needed to comply with the inflation criterion can be large and sustained only briefly to get under the Maastricht wire.
Keywords:
WP; exchange rate; fiscal policy; money market; business cycle; Inflation; Globalization; Price convergence; Maastricht criterion; Euro adoption; eurozone country; inflation term; EMU accession; Phillips curve; Maastricht inflation criterion; rate of inflation; eurozone economy; catch-up process; labor cost movement; convergence effects in the eurozone; eurozone sample; Output gap; Labor costs; Nominal effective exchange rate; Value-added tax; Europe; inflation criterion; inflation increase
Cover IMF Staff Country Reports
Republic of Slovenia: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper argues that revenue-neutral tax rebalancing would help Slovenia address long-term fiscal and growth challenges. The present tax-benefit system is supportive of distributional fairness in Slovenia; however, it is argued that tax reform can help bring stronger employment and productivity growth and enhanced resilience to the challenges of population ageing. The paper lays out the case for tax reform in view of long-run fiscal and growth challenges and it also reviews the current tax system and its weaknesses in comparison with international best practices. The paper also sets out tax reform options and uses a model simulation to illustrate the medium- to long-term fiscal and growth impact. The analysis on the tax rebalancing impact suggests that it can permanently and significantly increase potential output in Slovenia. The simulations indicate that a revenue-neutral tax rebalancing has positive fiscal and growth benefits over time.
Keywords:
ISCR; CR; revenue; property tax; rate; VAT; tax; VAT rate; capital gain; PIT rate structure; property tax regime; tax-to-GDP ratio; Consumption taxes; Personal income tax; Value-added tax; Income tax systems; Global
Cover IMF Staff Country Reports
Japan: Selected Issues
International Monetary Fund. Asia and Pacific Dept
This Selected Issues explores Japan’s experiences with past valued added tax (VAT) rate increases and discusses potential policy options to mitigate the economic impact of a third-rate increase. It assesses the impact on the Japanese economy and, where possible, provides some international context. Alongside possible mitigating policies, it also discusses the importance of policy commitment and credibility, and how they can influence the macroeconomic impact of tax rate changes. Carefully designing policy measures and communicating them clearly to the public are paramount to attenuate any negative outcomes in the short term. A simple, single-rate VAT would efficiently raise tax revenues and support the government’s objective of achieving fiscal consolidation in the medium term. Assuming underlying macroeconomic conditions are favorable, the October 2019 VAT rate increase could potentially have a smaller impact on the economy relative to that of 2014 for several reasons. In order to reduce policy uncertainty and alleviate any adverse impacts from the 2019 VAT rate increase, the authorities should clearly communicate the timing and content of associated mitigating measures.
Keywords:
ISCR; CR; rate increase; wage growth; yen appreciation; carry trade reversal; inequality trend; interest rate differential; Value-added tax; Consumption taxes; Income inequality; Health care spending; Wages; Global