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Effect of 2004 VAT increase greater than that of 2006

Two changes to Hungary's VAT rates in the past three years have had very different effects on inflation, the National Bank of Hungary said in a study published on Friday.

The study used shop-level price data on 770 representative products of the 896 products for which the Central Statistical Office (KSH) regularly collects data for its consumer price statistics. The study, by Péter Gábriel and Ádám Reif, shows that consumer prices of the affected goods rose 2.5% as the result of a 3-percentage-point increase of Hungary's middle VAT rate to 15%.

The middle rate, which has since been scrapped, applied to food, many services and household energy among others. The study also shows that the 5-percentage-point reduction in the top VAT rate to 20% at the start of 2006 reduced prices by just 1%. Food and unregulated-price energy products were the main categories affected. The 2004 VAT increase should have caused prices to rise 2.68%, the study's authors calculate. (Mti-Eco)