Taxation and production chain in the pharmaceutical sector in Brazil

Abstract

The literature on the effects of taxation on production chains is quite scarce. This paper examines the implementation of the single-phase PIS/Cofins scheme to investigate the impact of taxation on the organization of the pharmaceutical sector. In particular, it investigates the vertical links between industry and trade and on the opening of new firms in the sector. The results with panel data from 1995 to 2007 indicate an increase in vertical links between industry and wholesalers up to two years after the introduction of the law. In addition, results find a decrease in the creation of new companies during this period. Therefore, firms can respond to tax changes by rearranging their business organization.