We examine how competition affects VAT pass-through in isolated oligopolistic markets as defined by the Greek islands. Using daily gasoline prices and a difference-in-differences methodology, we investigate how changes in VAT rates are passed through to consumers in islands with different market structure. We show that pass-through increases with competition, going from 50% in monopoly to around 80% in more competitive markets, but remains incomplete. We also discover a rapid rate of adjustment for VAT changes, as well as a positive relationship between competition and the rate of price adjustment. Finally, we document higher pass-through for products with more inelastic demand.

---

1 December 2024

---

International Journal of Industrial Organization 972024

---

DOI: 10.1016/j.ijindorg.2024.103110

https://www.sciencedirect.com/science/article/pii/S0167718724000651

This Journal article is published under the centre's Growth programme.