The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Dora Benedek, Ruud A. Mooij, and Philippe Wingender
INTERNATIONAL MONETARY FUND
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.