Discussion paper

DP15189 Are temporary value-added tax reductions passed on to consumers? Evidence from Germany’s stimulus

This paper provides the first estimates of the pass-through rate of the ongoing
temporary value-added tax (VAT) reduction, which is part of the German fiscal
response to COVID-19. Using a unique dataset containing the universe of price
changes at fuel stations in Germany and France in June and July 2020, we employ
a difference-in-differences strategy and find that pass-through is fast and substantial
but remains incomplete for all fuel types. Furthermore, we find a high degree of
heterogeneity between the pass-through estimates for different fuel types. Our
results are consistent with the interpretation that pass-through rates are higher for
customer groups who are more likely to exert competitive pressure by shopping for
lower prices. Our results have important implications for the effectiveness of the
stimulus measure and the cost-effective design of unconventional fiscal policy.

£6.00
Citation

Montag, F, A Sagimuldina and M Schnitzer (2020), ‘DP15189 Are temporary value-added tax reductions passed on to consumers? Evidence from Germany’s stimulus‘, CEPR Discussion Paper No. 15189. CEPR Press, Paris & London. https://cepr.org/publications/dp15189