From Slaughterhouses to Consumers: Pass-Through of a Temporary VAT Cut Along the Vertical Supply Chain

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Seminario del IECON: Néstor Gandelman (Universidad ORT)

This paper studies the price effects and upstream traded-volume responses to a temporary VAT exemption in Uruguay’s beef market. We exploit a 60-day tax exemption applied to a specific beef rib cut and trace its effects along the vertical supply chain using administrative data from INAC. The exemption reduced the relative price of the treated cut by 8.6 to 10.7 percent, implying pass-through rates of roughly 80 to 100 percent. Upstream traded volumes also increased substantially relative to a control cut. Despite these sizable short-run effects, we find no evidence of persistent changes in either prices or traded quantities at any stage of the supply chain once the exemption expired. The results show that temporary consumption tax cuts can be largely passed through to prices while inducing substantial but transitory reallocations across related products.

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