The study shows that Spain’s VAT cuts were “costly” for the state and “inefficient” for families.

VAT cuts on some food items in Spain are ‘costly’ for the government and ‘not effective’ in reducing household spending, despite large supermarkets lowering the final price of these items, an academic study says.

The reduction in value added tax on food (up to 0% in some cases and up to 10% in others) has been in force in Spain since the beginning of January and “contrary to what happened in other countries”, this reduction “was transferred in the vast majority to final prices on these goods, “at least in large areas,” according to the findings of the ESADE Graduate School of Business study, which Lusa had access to this Monday.

“However, this measure was costly and inefficient” as it allocates the largest public effort (measured in euros that the state cannot collect) to families with higher incomes: “five out of every ten euros that were not collected ended up in 40 Euro. % of families with greater economic solvency,” the authors of the study write.

However, according to ESADE scientists, “the measure was progressive” as it resulted in savings equivalent to 0.3% of the total spending of households with lower incomes and 0.1% of those with higher incomes.

“In any case, these are modest percentages of savings,” the study concludes.

“At the same time, it must be kept in mind that the overall impact of this measure is modest compared to the size of the inflationary shock it intends to face. Food prices have risen by more than 13% since 2021, and this measure only assumes a 3.6% reduction in prices for the food subgroup.

The authors of the study add that “data” and analysis from other academic institutions or organizations such as the Bank of Spain show that “specific transfer policies for low-income households tend to be more distributive efficient, despite being more difficult to implement.” , as well as “cheaper from a budgetary point of view” of the state.

The ESADE study was based on the online sales prices of major supermarket chains in Spain, which account for 40% of the market in the country, collected and registered on the Datamarket digital platform.

The authors acknowledge and caution that this database has the limitations of reducing analysis to the large areas and prices they have when selling online.

The study used mathematical models to analyze the price dynamics of food products affected by the VAT reduction and another “control” food group without the effect of this measure between July 2022 and the end of February last year.

ESADE business school scientists also used official data from the Spanish Household Budget and Consumption Survey in this analysis.