(joint with Jean Hindriks)
will give a presentation on:
In April 2014, the Belgian government reduced the VAT rate on the electricity price from 21% to 6%. In September 2015, however, this tax cut was repealed and the VAT rate reverted to 21%. This paper investigates the impact of such temporary VAT reform on the Belgian electricity market. We study both the pass-through of the VAT to electricity prices and the effect of this reform on electricity consumption. We estimate the VAT pass-through to residential electricity prices through a difference-in-differences approach using non-residential electricity prices (not subject to VAT) as a control group. Our findings show that both VAT changes were perfectly shifted (i.e., 100%) to the electricity price. We then run an event study regression on monthly data about electricity consumption at the network operator level. This analysis allows us to estimate the impact of the reform on electricity consumption and to recover the short-run price elasticity of electricity demand.