A SHORT-RUN ASSESSMENT OF THE EFFECTS OF VAT ON CONSUMPTION PATTERNS - THE GREEK EXPERIENCE

The short-run effects of value-added tax (VAT) on individual commodity prices, the consumer price index, and the allocation patterns of tota l consumption expenditures among groups of commodities in Greece are e valuated. The methodological approach used is based on the static almo st ideal demand system (AIDS), which was estimated and tested for thir teen commodity groups using time-series data (1958- 86). The FIML appr oach was used for the estimation of the AIDS. The model was simulated for the post-VAT period. The principal results indicate that VAT has c hanged the structure of prices and demand, altered the pre-VAT allocat ion of total consumption expenditures among the groups of goods and se rvices and raised the overall consumer price index.