Authors: Anastasios Saraidaris

Title: The characteristics of the energy products’ tax incidence on consumers’ prices. Repercussions for the inflation in euro area countries.

Abstract

The current paper examines the characteristics of the energy prices in the HICP and in particular, the impact of the tax changes on the energy products’ prices as these are reflected in the harmonized index of consumer prices (thereafter HICP). The paper draws on the price index changes to identify the tax incidence as well as the pass-through characteristics. Since the precise magnitude of the impacts and the pass-through times remain largely uncertain in the relevant literature and policy practice, the scope becomes to differentiate the aspects of the tax incidence on the pertinent to energy items in the Divisions 4 and 7 of the HICP among the Euro Area Countries and other product categories.  The HICP provides the official measure of consumer price inflation in the euro area for the purposes of monetary policy and the assessment of inflation convergence as required under the Maastricht criteria for accession to the euro. Moreover, the strangle with rising inflation via reducing the energy prices has become extremely critical. The euro area headline inflation is vastly dominated by the strong contribution from energy prices which in 2022  are constantly increasing having reached unpreceded levels. Hence,  Europe has prompted euro area countries to put in place measures to shied households from the direct impact of the rising energy costs and the inflation eroding their income.

In the majority of the cases, the tax incidence differentiates in nature and appears rather unstable to changing external conditions. Moreover, the immediate pass-through of the changes in indirect taxes (excise duties and value added taxes) to consumer prices, is broadly serving  theoretical reasons and in reality  also varies according to factors such as the type of the product, the nature of the business, the supply chain, the macroeconomic conditions, the efficiency of the tax collection mechanism, etc. Those factors, occasionally play a different role in the time and magnitude aspects of the tax impact on the consumers’ prices.  The analysis findings provide insights on the potential efficiency and effectiveness of the widely differentiated mix of energy measures lately proposed by the euro area countries  with a view to combat the unprecedented shock on consumers’ prices merely due to the extremely high  prices in the energy market.