The Impact of the Tax Reduction on Fuel Prices in Germany – A Synthetic Difference-in-Differences Approach

Abstract

Abstract We analyse the impact of the temporary tax reduction on diesel and gasoline prices from June to the end of August 2022 in Germany. By implementing a synthetic difference-in-differences approach with different baskets of European countries, we find a significant reduction in prices by 33.8–34.4 cents per litre for gasoline and 12.2–14.6 cents per litre for diesel. These results are robust to variations of countries as well as different time periods analysed. Therefore, we conclude that the temporary reduction of the tax rate on gasoline and diesel was passed through to consumers by rates of 97 %–99 % for gasoline and 75 %–86 % for diesel, respectively. However, these pass-on rates do not imply a high level of competition. On the contrary, an increase in prices before the introduction of the tax cut and an increase before the end of the discount tend to indicate less intense competition.