Greece finds near‑full pass‑through of 2022‑23 VAT cuts to consumer prices

A memo from the Institute of Economic and Industrial Research (IME) GSEBE analyses how changes in VAT rates affect final consumer prices and household income in Greece. Reviewing 32 empirical studies covering 69 VAT episodes, it finds that before 2020 the average pass‑through of VAT reductions to prices was about 50%, whereas studies of the 2022‑23 temporary cuts show a near‑full pass‑through of 90‑100%. For VAT increases the pass‑through remains incomplete, averaging 74%, indicating that firms—especially small and sole‑proprietor businesses that dominate the Greek economy—absorb part of the higher cost to stay competitive.

The memo notes that more competitive markets exhibit higher pass‑through rates, while oligopolistic markets pass on less. Publicity of the VAT cuts and coordination between social partners and the government boost the redistribution effect, though the horizontal nature of the cuts limits their efficiency compared with targeted income support. Overall, the analysis concludes that the fiscal measures have a positive redistributive impact on Greek households.