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

Oskar Skans, Jarkko Harju and Tuomas Kosonen

No 2018:4, Working Paper Series from IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: We analyze price responses to large restaurant VAT rate reductions in two different European countries. Our results show that responses in the short and medium run were clustered around two focal points of zero passthrough and full pass-through. Differences between independent restaurants and chains is the key explanation for this pattern. While nearly all independent restaurants effectively ignored the tax reductions and left consumer prices unchanged, a substantial fraction of restaurants belonging to chains chose a rapid and complete pass-through. In the longer run, prices converged, but primarily through a price reversion among chain restaurants. The stark difference in price responses does not appear to arise because of different market characteristics such as location, initial price levels, meal types or restaurant segment.

Keywords: firm types; VAT incidence; price setting; restaurants (search for similar items in EconPapers)
JEL-codes: E31 H22 H32 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2018-04-12
New Economics Papers: this item is included in nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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