We study the effects of consumption tax changes on prices and unit sales of durables utilizing micro-level product data. The results show that tax rate changes are fully shifted into prices. An anticipated tax rate change causes a temporary shift in unit sales shortly before implementation, which is more than offset by adjustments upon and after implementation. If the tax rate increases by 1 percentage point, unit sales rise by 2.5 percent on average in the last month before implementation. The permanent effect is a drop in sales by 2 percent below their original level, implying relatively strong intertemporal substitution effects.
Buettner, Thiess, and Boryana Madzharova.
"Unit Sales and Price Effects of Preannounced Consumption Tax Reforms: Micro-level Evidence from European VAT."
American Economic Journal: Economic Policy,
Consumer Economics: Empirical Analysis
Macroeconomics: Consumption; Saving; Wealth
Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
Business Taxes and Subsidies including sales and value-added (VAT)
Fiscal Policies and Behavior of Economic Agents: Household