Firm types, price-setting strategies, and consumption-tax incidence

Tuomas Kosonen, Jarkko Harju and Oskar Skans

No 70, Working Papers from VATT Institute for Economic Research

Abstract: 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 pass-through. 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.

Keywords: firm types, VAT incidence, price setting, restaurants, Taxation, Verotus, Taxation and Social Transfers, Julkisen talouden rahoitus ja tulonsiirrot, E310 - Price Level; Inflation; Deflation, H220 - Taxation and Subsidies: Incidence, H320 - Fiscal Policies and Behavior of Economic Agents: Firm, (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (2)

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https://www.doria.fi/handle/10024/148727

Related works:
Journal Article: Firm types, price-setting strategies, and consumption-tax incidence (2018)
Working Paper: Firm types, price-setting strategies, and consumption-tax incidence? (2018)
Working Paper: Firm types, price-setting strategies, and consumption-tax incidence (2017)
Working Paper: Firm Types, Price-Setting Strategies, and Consumption-Tax Incidence (2015)
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