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Overview and details of the sessions of this online conference.

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Session Overview
K05: Tax Incidence
Friday, 20/Aug/2021:
12:30pm - 2:00pm

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12:30pm - 12:52pm

The Pass-Through of Temporary VAT Rate Cuts in German Supermarket Retail

Clemens Fuest1,2, Florian Neumeier1,2, Daniel Stöhlker1

1ifo Institute, Germany; 2CESifo

On 1 July 2020, value added tax (VAT) rates were reduced in Germany to fight the economic consequences of the Corona pandemic. The VAT rate reduction is temporary, and rates will go up to their previous level on 1 January 2021. We study the price effects of the temporary VAT rate reduction in German supermarket retail using an extensive webscrapped data set covering the daily prices of roughly 190,000 products. To identify the causal price effects, we compare the development of prices in Germany to those in Austria.Our findings indicate a nearly full pass-through of the VAT rate reduction on prices. On average, prices in German supermarket retail decreased by 2% after the implementation of the VAT rate reduction. We also provide evidence that prices in more competitive product markets decreased to a larger extent.

Fuest-The Pass-Through of Temporary VAT Rate Cuts in German Supermarket Retail-148.pdf

12:52pm - 1:15pm

Does VAT Remittance Invariance Hold? Evidence From E-Commerce

Giampaolo Arachi, Debora Assisi

University of Salento, Italy

This paper provides new evidence on the effect of tax remittance on tax incidence. We test whether the repeal of the reverse charge mechanism for a sample of items sold through has had any impact on their prices. The empirical analysis is performed using the Bayesian Structural time series method, as suggested by Brodersen et al. (2015) and extended by Schmitt et al. (2018). The causal impact of the policy change for each item in the dataset is computed by taking the difference between the treated series (observed) and the predicted counterfactual, which is the outcome that would have occurred had no intervention taken place. Finally, we infer the average effect of the repeal of the reverse charge using a fixed-effects meta-regression approach. The preliminary results shows that in the post-intervention period the prices applied by significantly increase.

Arachi-Does VAT Remittance Invariance Hold Evidence From E-Commerce-487.pdf

1:15pm - 1:37pm

Getting into the Weeds of Tax Invariance

Benjamin Hansen2, Kendall Houghton2, Keaton Miller2, Caroline Weber1

1University of Kentucky, United States of America; 2University of Oregon, United States of America

We provide the first general empirical test of tax invariance (TIV). When a 25 percent tax remitted by manufacturers was eliminated in Washington state and the retail cannabis excise tax was simultaneously increased from 25 to 37 percent---a shift intended to be revenue-neutral---TIV did not hold. Manufacturers kept two-thirds of their tax savings instead of passing all their savings through to retail firms via lower prices as predicted by TIV. One-third of the retail tax increase was passed on to consumers via higher retail prices -- TIV would have predicted constant or even declining tax-inclusive retail prices.

Hansen-Getting into the Weeds of Tax Invariance-361.pdf

1:37pm - 2:00pm

The Welfare Effects of Property Taxation

Max Löffler2, Sebastian Siegloch1

1ZEW and Uni Mannheim, Germany; 2Maastricht University

We analyze the welfare implications of property taxation. Using a sufficient statistics approach, we show that welfare effects depend on a few estimable elasticities: the response of housing prices, labor and other types of incomes as well as public goods to property tax rates. Empirically, we exploit the unique institutional setting of municipal property taxation in Germany with and around 15,000~tax reforms in the years between 2000--2017. Our results shows that higher taxes are fully pass-though to rental prices after three years. The price pass-through is somewhat lower in municipalities with inelastic housing supply. Using these reduced form estimates and our theoretical framework, we simulate the welfare effects of property taxes and show that they are highly regressive with the tax burden decreasing in income.

Löffler-The Welfare Effects of Property Taxation-426.pdf

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