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.
column (3) uses interaction fixed effects. The first four estimates correspond to β 1 in the main estimating equation above – they estimate the relationship between changes in the VAT rate and changes in prices, i.e. baselinepass-through. ‘Pre-Reform’ refers to the total effect across the six months preceeding the VAT change, and ‘Post-Reform’ refers to that across the six months afterwards; ‘Contemporaneous’ refers to effects in the month of the reform, and ‘Total’ is the sum of effects over the whole window. The remaining estimates correspond to different elements
This Selected Issues paper for Canada presents comprehensive and broad-based analysis of the role of domestic and external shocks. Canada’s economic history illustrates the important role played by external as well as domestic macroeconomic disturbances. Canada’s economy slowed in 2001 because of the global slowdown, although by less than in many other countries. In 2003, the recovery has been interrupted by a series of shocks that moderated growth. Fluctuations in Canadian real GDP are explained by external and domestic cycles.