The Effect of Increasing the Value Added Tax Rate on the Amount of Consumption of Food Products

Document Type : Research Paper

Authors

Faculty of Economics, Allameh Tabataba'i University, Tehran, Iran

Abstract

This study examines the impact of a one-percent increase in the value-added tax (VAT) rate implemented in Iran in 2011 on food consumption among 25,514 urban and rural households. Utilizing the difference-in-difference method, data were collected on the consumption of 152 micro-items across eight commodity categories: rice, bread and cereals, red meat and poultry, fish, dairy products, fruits and snacks, vegetables and spices, and beverages. The analysis also considered various factors, including income, household size, occupation, marital status, residence status, gender, age, and literacy of the household head, as well as whether they lived in urban or rural areas. The results indicate that the one-percent increase in the VAT rate in 2011 had a negative and significant impact (at the 99% confidence level) on the consumption of rice, red meat and poultry, fish, dairy products, fruits and snacks, vegetables and spices, and bread and cereals. In contrast, the effect on the beverage category was positive and significant at the same confidence level. Therefore, caution is advised when considering policies that involve increasing the value-added tax rate.

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References

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History

  • Receive Date: 06 December 2024
  • Revise Date: 05 May 2025
  • Accept Date: 10 May 2025

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