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

Discussion Papers 2039, 41 S.

Lydia Dimitrakopoulou, Christos Genakos, Themistoklis Kampouris, Stella Papadokonstantaki

2023

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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-Classification: H22;L1
Keywords: Pass-through, tax incidence, gasoline, Value added tax (VAT), market structure, competition, Greek islands

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