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<p>We exploit a natural experiment in Uruguay to estimate tax pass-through and test for asymmetric price adjustment. In June 2023, the government eliminated VAT (22%) and excise taxes on bottled water in response to an unprecedented drought emergency. Both taxes were reinstated two months later. The legal perimeter of the exemption covered mineral waters and sodas only, so flavored waters—sold on the same shelf by the same firms—remained fully taxed, providing a sharp within-category placebo and an unusually tight control group. Using weekly price data from a large supermarket chain, we find price responses broadly consistent with full tax pass-through and symmetric adjustment in magnitude, with estimated pass-through rates of approximately 106% at the tax cut and 112% at the reinstatement. Pass-through is uniform across container sizes. Flavored waters exhibit no price response at either transition, and using them as the sole control group reproduces the baseline estimates. Data from <i>precios.uy</i>, a mandatory price-reporting platform covering 634 retailers, show that full and symmetric pass-through extends to the market at large; the speed of adjustment, however, differed across transitions, with an immediate and universal price cut but a staggered price increase.</p>

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Retail price responses to a temporary tax holiday: evidence from Uruguay’s water emergency

  • 期刊论文

  • 发表日期：

    2026年7月30日

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  • Fernando Borraz

摘要

We exploit a natural experiment in Uruguay to estimate tax pass-through and test for asymmetric price adjustment. In June 2023, the government eliminated VAT (22%) and excise taxes on bottled water in response to an unprecedented drought emergency. Both taxes were reinstated two months later. The legal perimeter of the exemption covered mineral waters and sodas only, so flavored waters—sold on the same shelf by the same firms—remained fully taxed, providing a sharp within-category placebo and an unusually tight control group. Using weekly price data from a large supermarket chain, we find price responses broadly consistent with full tax pass-through and symmetric adjustment in magnitude, with estimated pass-through rates of approximately 106% at the tax cut and 112% at the reinstatement. Pass-through is uniform across container sizes. Flavored waters exhibit no price response at either transition, and using them as the sole control group reproduces the baseline estimates. Data from precios.uy, a mandatory price-reporting platform covering 634 retailers, show that full and symmetric pass-through extends to the market at large; the speed of adjustment, however, differed across transitions, with an immediate and universal price cut but a staggered price increase.