Market Power and the Heterogeneous Pass-through of Corporate Taxes to Consumer Prices

Luca Dedola, Chiara Osbat and Timo Reinelt

No 2025-25, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: We study the pass-through of corporate taxes into consumer prices, leveraging 1,058 municipal tax rate changes affecting 4,754 German firms. A 1 p.p. increase in a producer’s tax rate raises retail prices by 0.3% on average, consistent with imperfectly competitive producers. Product-level pass-through varies substantially, as it increases in destination-specific product and retailer-category market shares. We find little evidence linking heterogeneous passthrough to differences in retailer efficiency as reflected in relative consumer prices. Instead, our findings align with standard non-CES preferences where pass through increasing with market shares implies weaker strategic complementarities in price setting than when this relationship is reversed.

Keywords: Pass-through; Markup adjustment; Market Power; Vertical interactions; Double marginalization (search for similar items in EconPapers)
JEL-codes: E31 F45 H25 L11 (search for similar items in EconPapers)
Pages: 56
Date: 2025-11-06
New Economics Papers: this item is included in nep-com, nep-ind and nep-pub
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DOI: 10.24148/wp2025-25

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