Regional and Sectoral Varieties of VAT Pass Through in Japan

This paper investigates the contemporaneous (short-run) and dynamic (long-run) responses of regional and sectoral price level change in consumption tax rate (VAT) hike (i.e. pass through of VAT) in Japanese monthly, 10 regional and 10 sectoral (commodity category) data. We show the effects not only contemporaneous but also pre-reform (from 12 month ago to one month) and post-reform (from one month ahead to 12 month) similar to Benedek et al.(2019). We obtain some remarkable results. First, aggregate pass through is incomplete, but case in 5% in 1997 and 8% in 2014 increase are complete (or overshifting) pass-through. Second, sectoral difference is large (e.g. the long-run pass through range from -0.25 to 1.42), while regional difference is small