Informality, Incidence, and Pass-through of VAT Exemptions

In this study, we analyse the pass-through and incidence of Value Added Tax (VAT) exemptions on food in a low-income setting with very high levels of informality. We draw on detailed administrative data, a panel of nationally representative phone surveys, data scraped from supermarket websites, and direct observation of food prices across all supermarkets in the largest city. To identify the extent of pass-through from a recent, unanticipated removal of VAT, we conduct a difference-in-differences analysis comparing price changes between food items that became exempt with those that did not. We examine the incidence of VAT exemptions across the income distribution and the role of informality, using the phone survey data that captures the price and volume of food purchases at formal and informal stores. We also examine variation in pass-through rates between different types of supermarkets in urban areas.

Presenter bio:

Chris is an applied microeconomist working on development economics, political economy, and public finance. He is currently a McKenzie Research Fellow at the University of Melbourne (based in the Melbourne Institute) and on external leave from the World Bank. Chris is an Invited Researcher at the MIT Poverty Action Lab (JPAL), affiliated with the World Bank Tax Data Lab (DATAX) and the Institute for Fiscal Studies (IFS), and a Visiting Fellow at the Tax and Transfer Policy Institute.