Documents 2020/39

The impact on domestic consumer prices of tax changes and foreign prices

KVARTS - modelling of the Consumer Price Index

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In this document, we provide an analytical decomposition of the Consumer Price Index (CPI) and outline how prices are determined in the KVARTS macroeconomic model.

We use simulations performed with the model to analyse how changes in foreign prices and consumption taxes impact different measures of inflation. Four main conclusions emerge from our analysis. First, we find that the first-year effect on the CPI of a 1 per cent change in import prices is 0.4 per cent. Second, VAT and ad valorem excise tax rates have a much lower impact on inflation than excise taxes based on unit of sales. Third, most of the first-year impact of tax changes on the CPI is due to direct effects and not general equilibrium effects. Fourth, the CPI adjusted for taxes (CPI-AT) is also impacted by tax changes since excise taxes based on unit of sales are adjusted for CPI inflation.

About the publication

Title

KVARTS - modelling of the Consumer Price Index. The impact on domestic consumer prices of tax changes and foreign prices

Author

Thomas von Brasch, Ådne Cappelen and Arnaldur Sölvi Kristjansson

Series and number

Documents 2020/39

Publisher

Statistics Norway

Topic

Methods and documentation

ISBN (online)

978-82-587-1217-3

ISSN

2535-7271

Number of pages

14

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Documentation, descriptions of methods, models and standards are published in the series Documents.

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