NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Youssef Benzarti, Dorian Carloni, Jarkko Harju, Tuomas Kosonen

NBER Working Paper No. 23849
Issued in September 2017
NBER Program(s):PE

This paper shows that prices respond more to increases than to decreases in Value-Added Taxes (VATs). First, using all VAT reforms from 1996 to 2015 across all European countries we show that prices respond 3 to 4 times more to VAT increases than decreases. Second, using a plausibly exogenous VAT reform, we show that the asymmetry persists over several years. Third, we document several empirical features of this asymmetry that are inconsistent with the standard incidence model. We provide evidence consistent with firm behavior driving the asymmetry.

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Document Object Identifier (DOI): 10.3386/w23849

 
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