Why VAT Pass-Through Varies Across Countries: The Role of Market Power
with Tiago Bernardino, Saman Darougheh and Márcia Silva-Pereira
Abstract: We show that VAT pass-through rates depend systematically on market concentration using data from 16 European countries covering 1999-2019. Low-concentration industries exhibit 40% contemporaneous pass-through to consumers, while high concentration
industries show near-zero transmission. Cross-country differences explain 72% of the variation in market concentration. This heterogeneity accounts for 16% of cross-country variation in pass-through rates.
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