Can VAT Cuts and Anti-Profiteering Measures Dampen the Effects of Food Price Inflation?

This research estimates the effect of a temporary and large (21 p.p.) value-added tax (VAT) cut and anti-profiteering measures on food necessities during a period of high inflation in Argentina. Using barcode-level data across more than 3,000 supermarkets, we find that (1) absent the antiprofiteering measures, the pass-through of the temporary VAT cut to prices was asymmetric and persistent; (2) imposing anti-profiteering measures led to symmetric pass-through rates. Using a welfare model, we show that the VAT cut resulted in progressive welfare effects and that the anti-profiteering measures were successful at dampening the regressive welfare effects of the asymmetric pass-through. However, we show that these policies benefited high-income households more.