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

Jarkko Harju, Tuomas Kosonen and Oskar Skans

No 5654, CESifo Working Paper Series from CESifo

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 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.

Keywords: firm heterogeneity; VAT; price incidence; price setting; restaurants (search for similar items in EconPapers)
JEL-codes: E31 H22 H32 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (5)

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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? (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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