CEF.UP – ECO Seminar/Webinar

Tuesday – April 9^th, 2024, at 1:00 p.m. | Room 305| Online

“A Temporary VAT Cut in Three Acts: Announcement, Implementation, and Reversal” (joint work with Tiago Bernardino, Ricardo Duque Gabriel e Márcia Silva-Pereira)

João Nuno Quelhas   –  Banco de Portugal

Abstract:

“We investigate the pass-through of a Value-Added Tax (VAT) decrease to consumer prices, using Portugal’s temporary cut in VAT for a subset of food items in 2023 as a laboratory. Exploiting a novel high-frequency dataset of online retail prices, we use an event study approach to analyze price dynamics across the complete policy lifetime. We find that prices rose by around 1% upon announcement, that the pass-through was almost complete when the policy was implemented, and around 70% at the reversal. The reduction in prices persisted high over the entire duration of the policy. We estimate that the policy decreased month-on-month inflation by 0.7 percentage points. We also find evidence of deflation in producer prices which could be a potential mechanism driving the high pass-through.”