Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/128357
Authors: 
Harju, Jarkko
Kosonen, Tuomas
Nordström Skans, Oskar
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5654
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.
Subjects: 
firm heterogeneity
VAT
price incidence
price setting
restaurants
JEL: 
H22
H32
E31
Document Type: 
Working Paper

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