Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/236680 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9138
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
We investigate how the pass-through rate of commodity taxes depends on competition in a setting where consumers have imperfect information about prices. We use a theoretical search model that has two key predictions: First, the larger the number of price sensitive consumers, the higher the pass-through rate. Second, there is a hump-shaped relationship between the average pass-through experienced by consumers and the number of sellers. We test our theoretical predictions by studying pass-through in the context of a tax decrease and increase in the German retail fuel market. We estimate pass-through of these tax changes to diesel and gasoline prices using a unique dataset containing the universe of price changes at fuel stations in Germany and France and a synthetic difference-in-differences strategy. Our empirical results are in line with our theoretical predictions. Finally, we show that our theoretical framework can encompass and reconcile a large number of empirical observations in previous studies.
Subjects: 
pass-through
carbon tax
VAT
consumer search
competition
Document Type: 
Working Paper
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