Analyzing the Tax Contribution on Price Changes İn the Food Sector in Eurozone. Implications for the Efficiency of Tax Measures Against the Rising Inflation on Food Products

Anastasios Saraidaris
Hellenic Open University, European Commission-Eurostat, Luxembourg

Abstract

The current paper explores the impact of the tax measures on food prices as this is reflected in the harmonized index of consumer prices (HICP). The paper draws on the consumer price index changes to identify the tax incidence, as well as its pass-through characteristics. Since the last quarter of 2021, the rapidly rising production costs, also in the food industry, inflated drastically the food prices both directly (immediate pass-through), as well as indirectly via the reduction of the weight of food packages sold for the same price (‘shrinkflation’). The paper deals with the direct impact of the tax changes and sheds light on particularities of the tax incidence on food prices across the eurozone countries in comparison to other products (e.g., energy products). In the relevant literature, the tax incidence is found to differentiate according to the products’ nature, the market and macroeconomic conditions, the type of tax reform (i.e., value added taxes, excise duties, etc.), the efficiency of the tax collection mechanism, etc. Methodology and data: The paper uses an appropriate set of euro area countries’ monthly HICP and HICP-CT series for food products in the period: January 2015-April 2022. The focus of the analysis rests mainly on the Special Aggregate Food of the ECOICOP classification system of the HICP. The HICP-CT is treated as an analysis proxy for the potential tax incidence. Due to existing methodological constraints, the HICP-CT is seen as an approximation of the upper bound of the tax incidence, rather than an accurate measure of actual contributions. Within such an analysis framework, the HICP-CT corresponds to the theoretical contribution of tax changes to overall inflation, assuming an instantaneous and complete pass-through of tax rate changes on the prices paid by the consumers. Key words Tax incidence, food prices, pass-through, harmonized index of consumer prices (HICP). H20,H22,H31

Presentation