Firm Types, Price-Setting Strategies, and Consumption-Tax Incidence
CESifo, Munich, 2015
CESifo Working Paper No. 5654
![](https://cesifo.org/DocImg/cesifo1_wp5654.jpg?c=1689237026)
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.
Public Finance
Industrial Organisation