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A Temporary VAT Cut in Three Acts: Announcement, Implementation and Reversal

Orador convidado

Ricardo Duque Gabriel (Reserva Federal)


Sala -1.26 EEG & Online


Início20.03.2024 13:15Fim20.03.2024 14:15

Resumo do evento

Short Bio: Ricardo is an economist at the Federal Reserve Board of Governors in the United States. His main research interests are Public Policy, Macroeconomics, and Finance. He obtained his PhD in Economics from the University of Bonn.

We investigate the price pass-through o of a temporary Value Added Tax (VAT) cut on a basket of food items implemented in Portugal in 2023. Exploiting a novel high-frequency dataset of online retail prices, we employ an event study approach to investigate price dynamics across three moments: policy announcement, implementation, and reversal. We find that (i) prices rose by around 1% upon announcement, (ii) the pass-through was around 99% upon implementation, and (iii) the pass-through was around 70% upon reversal. The policy is estimated to decrease headline inflation by approximately 0.7 p.p. directly. We find evidence that disinflation in producer prices around implementation could be one of the mechanisms driving the almost complete pass-through.

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