Working Paper: CEPR ID: DP18179
Authors: Lydia Dimitrakopoulou; Christos Genakos; Themistoklis Kampouris; Stella Papadokonstantaki
Abstract: We examine how competition affects VAT pass-through in isolated oligopolistic markets as defined by the Greek islands. Using daily gasoline prices and a difference-in-differences methodology, we investigate how changes in VAT rates are passed through to consumers in islands with different market structure. We show that pass-through increases with competition, going from 50% in monopoly to around 80% in more competitive markets, but remains incomplete. We also discover a rapid rate of adjustment for VAT changes, as well as a positive relationship between competition and the rate of price adjustment. Finally, we document higher pass-through for products with more inelastic demand.
Keywords: Passthrough; Tax incidence; Gasoline; Value Added Tax; VAT; Market structure; Competition; Greek Islands
JEL Codes: H22; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| VAT changes (H25) | gasoline prices (L90) |
| competition (L13) | VAT passthrough (H25) |
| competition (L13) | rate of price adjustment for VAT changes (H25) |
| demand elasticity (D12) | VAT passthrough (H25) |