What Goes Up May Not Come Down: Asymmetric Incidence of Value-Added Taxes

Abstract

for helpful suggestions and comments. We would also like to thank Freddy De Buysscher from the European Commission for providing us with the VAT reports for years 1996 to 2003.

Do consumers pay the corporate tax?

“…Our estimates suggest that between 61% and 72% of the corporate tax burden is passed on to consumers in the form of higher prices. Our findings also suggest that, while the effect of taxes on prices persists, the effect is asymmetric: Tax hikes increase prices, whereas tax cuts appear to leave prices unchanged (see also Benzarti et al, 2020 and the case of the value‐added tax, VAT).…”

The redistributive power of cash transfers vs VAT exemptions: A multi-country study

“…It is unlikely that all product markets can be characterised in this way. However, studies suggest that consumers typically bear a large proportion of the incidence of VAT – particularly for increases in VAT, which are the focus of this paper ( Benzarti et al, 2020 , Carbonnier, 2007 , Gaarder, 2019 , Lyssiotou and Savva, 2021 ). Moreover, the assumption of full incidence on consumers significantly simplifies the modelling of the distributional effects of VAT.…”

On event studies and distributed‐lags in two‐way fixed effects models: Identification, equivalence, and generalization

“…Note that it may be the case that the proportionality assumption of Remark 8 is violated. For example, treatments with opposite signs may have asymmetric effects on the outcome (see, e.g., Benzarti et al, 2020; Fuest et al, 2018). It is therefore always advisable to test for symmetric effects.…”