Prisökningar och momssänkningar

Abstract

In recent years, sharply rising food prices have had a severe impact on households' real income in Sweden. To ease this burden, the government has decided to temporarily reduce the value-added tax (VAT) on food. Whether the effect of the VAT reduction will actually reach end consumers in the form of lower food prices depends on how willing grocery retailers are to reduce prices in proportion to the tax cut. This, in turn, partly depends on the degree of competitive pressure in the Swedish grocery retail market, which is characterized by a small number of dominant actors. The aim of this study is therefore to examine how competition at the municipal level affects food prices. The results are then analyzed to provide an indication of the extent to which a VAT reduction may be passed through on to consumer prices in Sweden. The results show a weak and mostly insignificant relationship between the study’s competition measure and price levels over the years, instead, store size stands out as the strongest explanatory variable for differences in price levels between stores. Overall, the findings can be interpreted as indication that price competition in the grocery retail sector is limited. This suggests that the forthcoming VAT reduction risks not being fully passed on to end consumers.