The project analyzes the price effects of the temporary cut of the German value added tax (VAT) that was enacted in 2020 as part of COVID simulus measures. The analysis is based on detailed scanner data provide by GfK, containing information on prices and quantities of more than 100 million transactions. The results show that the VAT cut led to a price reduction of both slow and fast moving consumer goods. The price reduction happened immediately, henc ein July 2020. About 86% of the tax decrease was pass-through to consumers with a pass-through rate of 96% for slow moving consumer goods and 76% for fast moving consumer goods. Using plausible estimates of the intertemporal substitution elasticity, we show that the temporary tax cut led to stabilization effects of about 0,3% of the GDP. We further show that prices increase in January 2021 when the VAT rate increase to pre-reform levels.
Beck, Günter, Alfred Dijs, Xavier Jaravel, Sebastian Kessing and Sebastian Siegloch (forthcoming), Analyse der Verbraucherpreisentwicklung nach Senkung der Mehrwertsteuer, Bundesministerium für Justiz und Verbraucherschutz (BMJV), Berlin. Download