Unit Sales and Price Effects of Pre-announced Consumption Tax Reforms : Micro-level Evidence from European VAT

We study the effects of consumption tax changes on prices and unit sales of durables utilizing micro-level product data. The results show that tax rate changes are fully shifted into prices. An anticipated tax rate change causes a temporary shift in unit sales shortly before implementation, which is more than offset by adjustments upon and after implementation. If the tax rate increases by 1pp., unit sales rise by 2.5% on average in the last month before implementation. The permanent effect is a drop in sales by 2% below their original level, implying relatively strong intertemporal substitution effects