VAT Pass-Through and Competition: Evidence from the Greek Islands

Lydia Dimitrakopoulou, Christos Genakos, Themistoklis Kampouris and Stella Papadokonstantaki

No 18179, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

JEL-codes: H2 L1 (search for similar items in EconPapers)
Date: 2023-05
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