Pass-through of temporary fuel tax reductions: Evidence from Europe

Abstract

Several European countries have implemented temporary fuel tax reductions in 2022 to relieve the financial burden on their citizens. This paper is the first to provide estimates of the pass-through rates as well as the effect on retail margins for France and Italy. Further, it contributes to the recent literature on the fuel tax reduction in Germany. Using a unique data set containing daily consumer prices at service station chain level for gasoline and diesel, we employ a staggered Difference-in-Differences (DiD) design. Our main results imply that in the aggregate there was a full-shifting of the fuel tax reductions in all three countries. Nevertheless, in an event study design we find that the pass-through rates over time are heterogeneous between the countries and types of fuel. Depending on time, heterogeneous effects imply a full-shifting up to a minor over-shifting of the pass-through rates. These findings also have important implications for the effective design of unconventional fiscal policy as well as for competition policy in the fuel market.