Demand for culture in Spain and the 2012 VAT rise

[EN] This paper analyzes the effects that the 2012 VAT rise in Spain had on household’ demand for cultural goods and services. Household’ demands are modeled as a two-stage QUAIDS. After estimating price and expenditure elasticities, and the pass-through parameter associated with the reform, our results show that the individual welfare loss and the increment in the tax bill increase, but less than proportionately, with income. Consequently, the reform can be considered as regressive. Relating the effects of the VAT reform to households’ incomes also implies a low quantitative effect, because of the low proportion of total household expenditure that cultural expenditure represents. From a social perspective, the size of the induced welfare loss would positively depend on society’s inequality aversion. Regardless of the latter, it cannot be concluded whether the reform would have increased or reduced inequality in the distribution of cultural spending. Our results prove qualitatively robust to alternative values of the pass-through parameter.This study was funded by Spanish Ministry of Economy and Competitiveness and the European Fund of Regional Development (Grant Numbers ECO2015-64467-R and ECO2016-76884-P (MINECO/FEDER)) and by the Basque Government (Grant Numbers DEUI-IT-793-13 and DEUI-IT-783-13)