Abstract
We use rich, micro-level tax return data for the entire population of small and medium-sized German restaurants and find empirical evidence that these firms employ the misclassification of meal consumption type as a VAT evasion strategy. Using difference-in-differences as well as triple-difference-in-differences specifications, we find that a ceteris paribus increase in the standard VAT rate significantly increases the declared sales volume of take-away consumption (reduced rate) relative to on-site consumption (standard rate), even though gross prices are customarily identical for both consumption types.
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