Firm Types, Price-Setting Strategies, and Consumption-Tax Incidence

Arbeitspapier

Studying very detailed micro data collected around two different VAT reforms in Europe, we show that tax incidence is heavily dependent on the characteristics of the price-setting firms. The reforms generated bimodal price-change distributions; nearly all independent restaurants left prices unchanged whereas a substantial fraction of restaurants belonging to chains chose a complete passthrough. These differences cannot be explained by location, initial prices or other market-segment indicators. Instead, differences appear to arise because independent restaurants aim for (very) crude price ranges rather than fine-tuned optimized prices, whereas chains use more elaborate, coordinated pricing strategies.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 5654

Classification and Topics

• Classification: Wirtschaft ; Taxation and Subsidies: Incidence ; Fiscal Policies and Behavior of Economic Agents: Firm ; Price Level; Inflation; Deflation
• Subject: firm heterogeneity ; VAT ; price incidence ; price setting ; restaurants

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Harju, Jarkko ; Kosonen, Tuomas ; Nordström Skans, Oskar
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/128357
• Last update: 10.03.2025, 11:43 AM CET