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Vertical Integration and Production Inefficiency in the Presence of a Gross Receipts Tax

Author

Listed:
  • Benjamin Hansen
  • Keaton S. Miller
  • Caroline Weber

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 more than twice as large. We find these incentives lead to large output losses – production increases by 23 percent when the GRT is eliminated.

Suggested Citation

  • Benjamin Hansen & Keaton S. Miller & Caroline Weber, 2021. "Vertical Integration and Production Inefficiency in the Presence of a Gross Receipts Tax," NBER Working Papers 28478, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28478
    Note: EH IO PE
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    Cited by:

    1. Dario Tortarolo & Pablo Garriga, 2022. "Firms as tax collectors," IFS Working Papers W22/44, Institute for Fiscal Studies.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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