Indirect Taxation, Corporate Pricing Strategy and Competitive Positioning: the Reaction of Romanian Firms to Value-Added Tax Increase

摘要

From a theoretical perspective, the most significant reaction to an increase in an indirect tax calculated as a percentage of the final price should come from the competitors positioned both at the lowest and at the highest price-to-quality segments of the market. Taking into consideration the pricing reaction of Romanian firms to the Is' of August 2010 increase in Value Added Tax (the biggest VAT hike in Europe), we argue that their reaction was weak based most probable on the comfort that such a tax increase would not change their competitive positioning. The market segment most affected by such a tax hike, the luxury segment, seems to purely and simply ignore the situation while price sensitive distributors have used "tax deductions " techniques as a transitory step.