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Vertical integration and production inefficiency in the presence of a gross receipts tax

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  • Hansen, Benjamin
  • Miller, Keaton
  • Weber, Caroline

Abstract

We quantify the effects of a gross receipts tax (GRT) on vertical integration for the first time. We use data from the Washington state recreational cannabis industry, which has numerous advantages including a clean natural experiment: a 25% GRT imposed on cannabis firms was subsequently replaced by an excise tax at retail. We find the short-run elasticity of vertical integration with respect to the intermediate good net-of-tax rate is −0.15 and the long-run elasticity is about twice as large. We find these incentives lead to large output losses – production increases by 23 percent when the GRT is eliminated.

Suggested Citation

  • Hansen, Benjamin & Miller, Keaton & Weber, Caroline, 2022. "Vertical integration and production inefficiency in the presence of a gross receipts tax," Journal of Public Economics, Elsevier, vol. 212(C).
    • Handle: RePEc:eee:pubeco:v:212:y:2022:i:c:s0047272722000950
    DOI: 10.1016/j.jpubeco.2022.104693
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    More about this item

    Keywords

    Gross receipts tax; Turnover tax; Vertical integration; Natural experiment; Cannabis; Excise tax;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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