Working Paper: NBER ID: w28478
Authors: 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.
Keywords: gross receipts tax; vertical integration; production inefficiency; cannabis industry
JEL Codes: H21; H25; H26; H30; H71; I28; L51; L6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| GRT (R15) | vertical integration (L22) |
| elimination of GRT (F12) | share of vertically integrated cannabis products (L66) |
| GRT (R15) | production inefficiency (D24) |
| elimination of GRT (F12) | production (L23) |
| vertical integration (L22) | production inefficiency (D24) |