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Companies Exploit Tax Increases To Profit Off the Consumer, Study Finds

New research finds that large companies take advantage of tax increases to jack up prices—bad news for Israeli consumers facing a wave of new taxes and increased prices for government services

פירות בסופרמרקט (צילום: מיכאל גלעדי/פלאש90)
(Illustrative photo: Michael Giladi/Flash90)
By Gal Rakover

Small tax increases and price hikes can end up having outsize effects on consumers, a new study has found. That’s bad news for Israeli consumers, given the rise in taxes and increase in costs for water, electricity, and other government-controlled services that took effect at the start of 2025.

The research study, which was carried out by Isabella Weber, an economist from the University of Amherst, Massachusetts who focuses on inflation, found that companies can use government measures as an excuse to raise prices, increasing their profits at the expense of consumers. Although tax increases and price hikes were only meant to affect consumers by a few percentage points, companies saw their opportunity and ran with it.

Weber studied rising prices during the COVID-19 pandemic in the United States. She found that large companies took advantage of a temporary period when it was more acceptable to raise prices and raised their prices, even when there was no real need. According to Weber, their reasoning was that if it was legitimate to raise prices due to increases in energy costs, large companies with a large market share could raise prices more than strictly necessary to increase their profits at the expense of the consumer.

A striking example from Israel is the effect of the alcohol tax increase and subsequent decrease on the price of alcohol for consumers. According to a report by former Bank of Israel Governor Karnit Flug published by the Israel Democracy Institute, the prices of alcoholic beverages increased following the tax increase in 2013, but when the tax was returned to its previous level, prices remained high.

Weber substantiated her claim by analyzing conversations between senior management and shareholders. In the US, companies traded on the stock exchange are required to hold periodic open meetings with shareholders. In many cases, the CEOs explained that under the cover of the general price increases, they raise their prices so that their profit will increase. A website established by the American research institute “Groundwork Collaborative” collects quotes from CEOs bragging to shareholders about price increases.

The Israeli food market is known for its concentration among a few large companies, which, according to Weber's theory, will make it easier for companies to coordinate price increases.

This article was translated from Hebrew by Lily Sieradski.

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