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Passing-through Taxes Beyond Borders with a Cobra Effect

13 marzo 2019
3:00 pm
San Francesco Complex - Classroom 2

Does the tax pass-through effect go beyond borders? We use firm-level prices to analyze the incidence of a tax change on firms on different sides of a border in an oligopolistic industry with differentiated products. By using a difference-in-differences strategy we find that firms' tax responses are consistent with predicted firms' best-responses. We show that the effect of the tax change was even larger after a politician publicly asked his fellow citizens to avoid crossing the border to buy. Besides suggesting that politicians should be more prudent, these findings highlight the importance of fiscal harmonization in areas without economic borders.


JEL Classification: D43, H22, H73
Keywords: Pass-through, differentiated oligopoly, tax policy, cobra effect, diff-in-diff

Miguel Ángel Borrella Mas - Dpto. Economía Universidad de Navarra