WRITTEN QUESTION E-0032/02 by Christopher Huhne (ELDR) to the Commission. Calculation of price divergence.
Date: 2002-01-23
Institutions: European Parliament, Provisional data
Subjects: euro area, final consumption, indirect tax, non-participating country (euro area), participating country (euro area), price disparity, statistics, tax on consumption

C 160 E/170

Official Journal of the European Communities

EN

4.7.2002

(2002/C 160 E/210)

WRITTEN QUESTION E-0032/02

by Christopher Huhne (ELDR) to the Commission

(23 January 2002)

Subject: Calculation of price divergence

Will the Commission state why it has used private consumption including indirect taxes, as opposed to
private consumption excluding indirect taxes, as the basis for its calculations of price divergence in the
report from the Commission ‘Economic Reform: Report on the functioning of Community product and
capital markets’ (1)?

(1) COM(2001) 736 final.

Answer given by Mr Bolkestein on behalf of the Commission

(18 March 2002)

Price convergence for private final consumption including taxes is one of the structural indicators agreed
on by the Council to be used by the Commission in the synthesis report to the Spring European Councils.
The Commission has also been using this indicator for some time in its annual report on the functioning
of Community product and capital markets (the ‘Cardiff report’) as an indicator of price convergence in the
internal market.

The purpose of the indicator is to monitor the convergence of prices actually paid by consumers and for
in last year’s Cardiff report (1), the Commission
that reason prices including taxes are used. However,
produced the indicator both including and excluding VAT in order to show the impact of differences in
VAT-rates on price convergence (2).

The results (table 1) which show the price level with respect to the Union-average for private final
to the
consumption excluding and including VAT for all Member States in 1998 are sent direct
Honourable Member and to the Parliament’s Secretariat. The price difference without VAT measured by
the co-efficient of variation was 12 percent which is not much less than when VAT is taken into account
(14 percent) (3).

For individual countries, however, differences in the VAT-rate can change the relative position with respect
to the Union-average.

Differences in the VAT-rate also have an impact on price differences across sectors. Table 2, which is also
sent direct to the Honourable Member and to the Parliament’s Secretariat, shows the co-efficient of
variation for goods and services calculated with and without VAT. VAT makes the biggest difference for
non-durable goods like for instance food. VAT differences across Member States are fairly large in food
products. The VAT-rate ranges from zero for some types of food in Ireland and the United Kingdom to
25 percent in Denmark. For durable goods like for example televisions and other consumer electronics
equipment, VAT differences across Member States are smaller.

(1) COM(2000) 881 final.
(2) These calculations take into account VAT only.
(3) The co-efficient of variation measures the average variation in the price levels around the mean and is a measure of
the price variation across Member States. For instance, a co-efficient of variation equal to 0,15 means that on
average prices varies with ± 15 percent around the mean.