A short-run assessment of the effects of VAT on consumption patterns: the Greek experience

Abstract

The short-run effects of value-added tax (VAT) on individual commodity prices, the consumer price index, and the allocation patterns of total consumption expenditures among groups of commodities in Greece are evaluated. The methodological approach used is based on the static almost ideal demand system (AIDS), which was estimated and tested for thirteen commodity groups using time-series data . The FIML approach was used for the estimation of the AIDS. The model was simulated for the post-VAT period. The principal results indicate that VAT has changed the structure of prices and demand, altered the pre-VAT allocation of total consumption expenditures among the groups of goods and services and raised the overall consumer price index. 0003-6846 0 1993 Ckuptnan & Hall

Value-added taxation and consumption

“…For example, Freebairn (1991) investigates the effects of a consumption tax on the level and composition of Australian saving and investment, and finds that the short run effects on aggregate savings are small, though positive. Also, Andrikopoulos et al (1993) assess the short run effects of the VAT on consumption in Greece, and they find that the VAT affected individual commodity prices, the consumer price index, and the allocation patterns of consumption expenditures among groups of commodities. To our knowledge, there is no empirical work that addresses the issues that we examine here.…”

An empirical study of the impact of VAT on the buying behavior of households in the United Arab Emirates

“…Regarding especially its impact on saving, Metcalf (1995) emphasizes that there is no clear cut answer on whether implementing the VAT would increase savings rate. (Andrikopoulos et al, 1993) assessed the short run effects of VAT on consumption in Greece and found that VAT affected individual commodity prices, the consumer price index, and the allocation patterns of consumption expenditures among different groups of products.…”

Indirect Taxation in Greece: Evaluation and Possible Reform

“…Since there is effectively no price variation in the HES data, we draw on two recent time series estimates of complete demand systems for Greece. 10 The first, by Andrikopoulos et al (1992), contains an estimation of the Almost Ideal Demand System (AIDS) for Greece for thirteen commodity groups based on National Accounts time series data for the period 1958-1986. The second study was conducted by Alogoskoufis et al (1996) and involves again an estimation of the AIDS for Greece for nine commodity groups using annual time series data for the period 1970-1990.…”

“…Desirable directions of tax reform are moderately sensitive to the coefficient of inequality aversion. If government cares little or nothing about redistribution (ν = 0 to 0.5), one would propose raising taxes on communication, health, education, and possibly furniture and food, and decreasing taxes on recreation (including durables related to entertainment such as TV sets, hi-fi stereo systems), transport, alcohol and housing using the elasticities by Andrikopoulos et al (1992). The results are not very different using the elasticities from Alogoskoyfis et al (1996), taking into account the difference in the number of commodity groups.…”

“…Here we conduct a relatively simple test of robustness, by considering how much the ranking of commodities varies with the choice of the demand system and the ranking by tax attractiveness (capturing equity). Table B1 gives the rankings for the demand system estimated by Andrikopoulos et al (1992) (in the left panel), and by Alogoskoufis et al (1996) in the right hand panel. The rows are ranked by the order of the efficiency determinant of taxation, θ i /f i , from equation ( 7), i.e by 1 + Στ k ω k ε k i /ω i , in the column headed "Rank AIDS".…”