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Heterogeneity in the tax pass-through to spirit retail prices: Evidence from Belgium

Author

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  • HINDRIKS Jean,

    (CORE, Université catholique de Louvain)

  • SERSE Valerio,

    (CORE, Université catholique de Louvain)

Abstract
On 1st November 2015, the Belgian government increased the excise tax on alcoholic beverages. For spirits with 40% of alcohol and bottle size of 70cl, this tax change is equivalent to an amount of 2,43€ per bottle of spirits. This paper studies the impact of this tax reform on the retail price of six major brands of spirits, using a difference-in-differences method. The estimation is based on a balanced panel of scanner data from a major supermarket chain and uses the retail prices of the same brands sold in France by the same supermarket chain as a control group. Having information on each store geographical location, we can further test for heterogeneity in tax pass-through according to the intensity of local competition and the scope for cross-border shopping. We find that the tax was quickly passed through spirit retail prices already during the first month of tax implementation and that it was mostly over-shifted. Unlike the (nearly) uniform pricing in US retail chains, we show spatial variation in prices across stores, and we find a large heterogeneity in tax pass-through linked to variation in local competition and price elasticity of demand. Although the tax reform has considerably increased the relative price of Belgian spirits with respect to all its neighboring countries, we find a lower tax shifting only in stores bordering on Luxembourg. Which is the neighboring country with the lowest spirit prices before the alcohol tax reform. These findings have important implications for alcohol control policies as they highlight the risk that the health benefits of alcohol taxation can vary greatly across households according to where they live.

Suggested Citation

  • HINDRIKS Jean, & SERSE Valerio,, 2018. "Heterogeneity in the tax pass-through to spirit retail prices: Evidence from Belgium," LIDAM Discussion Papers CORE 2018004, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2018004
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    Cited by:

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    2. Asatryan, Zareh & Gomtsyan, David, 2020. "The incidence of VAT evasion," ZEW Discussion Papers 20-027, ZEW - Leibniz Centre for European Economic Research.
    3. Hindriks, Jean & Serse, Valerio, 2022. "The incidence of VAT reforms in electricity markets: Evidence from Belgium," International Journal of Industrial Organization, Elsevier, vol. 80(C).
    4. Shiraishi, Kosuke, 2022. "Determinants of VAT pass-through under imperfect competition: Evidence from Japan," Japan and the World Economy, Elsevier, vol. 61(C).
    5. Gehrsitz, Markus & Saffer, Henry & Grossman, Michael, 2021. "The effect of changes in alcohol tax differentials on alcohol consumption," Journal of Public Economics, Elsevier, vol. 204(C).
    6. Harju, Jarkko & Kosonen, Tuomas & Laukkanen, Marita & Palanne, Kimmo, 2022. "The heterogeneous incidence of fuel carbon taxes: Evidence from station-level data," Journal of Environmental Economics and Management, Elsevier, vol. 112(C).
    7. Johannes Kasinger, 2024. "Shrouded Sin Taxes," Papers 2409.01493, arXiv.org.
    8. Luke B. Wilson & Robert Pryce & Colin Angus & Rosemary Hiscock & Alan Brennan & Duncan Gillespie, 2021. "The effect of alcohol tax changes on retail prices: how do on-trade alcohol retailers pass through tax changes to consumers?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 22(3), pages 381-392, April.
    9. Sieg, Gernot & Wessel, Jan, 2022. "I would if I could: Passing through VAT reductions in the german rail industry," Economics of Transportation, Elsevier, vol. 32(C).
    10. Klara Kinnl & Ulrich Wohak, 2023. "Free the Period? Evaluating Tampon Tax Reforms Using Household Scanner Data," Department of Economics Working Papers wuwp356, Vienna University of Economics and Business, Department of Economics.
    11. Blasco-Arcas, Lorena & Lee, Hsin-Hsuan Meg & Kastanakis, Minas N. & Alcañiz, Mariano & Reyes-Menendez, Ana, 2022. "The role of consumer data in marketing: A research agenda," Journal of Business Research, Elsevier, vol. 146(C), pages 436-452.
    12. Nelson Jon P. & Moran John R., 2020. "Effects of Alcohol Taxation on Prices: A Systematic Review and Meta-Analysis of Pass-Through Rates," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(1), pages 1-21, January.
    13. Bokhari, Farasat A.S. & Dobson, Paul W. & Morciano, Marcello & Suhrcke, Marc, 2023. "Banning volume discounts to curb excessive consumption: A cautionary tale," European Economic Review, Elsevier, vol. 156(C).
    14. Valerio Serse, 2019. "Do Sugar Taxes affect the right consumers?," 2019 Papers pse633, Job Market Papers.
    15. Clemens Fuest & Florian Neumeier & Daniel Stöhlker, 2021. "The Pass-Through of Temporary VAT Rate Cuts: Evidence from German Supermarket Retail," CESifo Working Paper Series 9149, CESifo.

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    More about this item

    Keywords

    tax pass through; scanner data; competition; cross border shopping;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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