Although theoretical analysis shows that competition is a key determinant of how firms pass through changes in tax rates to consumers, empirical evidence is scant. This column explores changes in the excise duty on petroleum products on Greek islands to examine how pass-through varies with competition in isolated oligopolistic markets. Pass-through increases with competition in a nonlinear fashion, both for specific taxes and VAT, and the frequency of price adjustments is higher in more competitive markets. The pass-through of tax increases is five times larger than for tax cuts, and pass-through of tax cuts does not seem to vary with competition.

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22 June 2023

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Vox EU

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https://cepr.org/voxeu/columns/competition-and-pass-through-lessons-greek-islands

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