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Taxation and Product Variety: Evidence from the Brazilian Automobile Industry

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Document pages: 45 pages

Abstract: This paper empirically assesses the impact of a discontinuous tax schedule on prices, markups and product assortment in the Brazilian automobile industry. To this end, I estimate a structural, equilibrium model of demand and supply for over a hundred different models and engine sizes of automobiles. With the model estimates of price elasticities and marginal costs I quantify how market power impacts the progressivity of the discontinuous tax schedule. I also examine how firms would reposition their products to avoid the tax and quantify the impact of this repositioning on equilibrium outcomes.

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