This paper estimates the effect of a temporary and large (21 p.p.) value-added tax (VAT) cut along with anti-profiteering measures on food necessities during a period of high inflation in Argentina. Using barcode-level data across more than 3,000 supermarkets, we find that (1) absent the anti-profiteering measures, the pass-through of the temporary VAT cut to prices was asymmetric: prices responded less to the VAT cut than its repeal resulting in prices that were higher than their pre-VAT cut levels; (2) imposing anti-profiteering measures, such as setting a ceiling on price increases, led to symmetric pass-through rates. Using a household welfare model, we show that the VAT cut resulted in progressive welfare effects and that the anti-profiteering measures were successful at dampening the regressive welfare effects of the asymmetric pass-through. However, we show that these policies benefited high-income households more because pass-through rates are more asymmetric in independent grocery stores, which is precisely where low-income households tend to shop the most.
Authors
- Acknowledgements & Disclosure
- We are grateful to Pierre Bachas, Raj Chetty, Jarkko Harju, Clara Martinez-Toledano, Emmanuel Saez, Alisa Tazhitdinova, Roman D. Zarate, and several seminar and conference participants for helpful suggestions and comments. We acknowledge financial assistance from the Institute for New Economic Thinking, the EUR grant ANR-17-EURE-0001, the World Inequality Lab, CEPREMAP, the Institute for Fiscal Studies, and the University of Nottingham. The views expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, nor those of the Executive Directors of the World Bank or the governments they represent, nor those of the National Bureau of Economic Research.
- DOI
- https://doi.org/10.3386/w32241
- Published in
- United States of America
