Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/117337
Authors: 
Schmitt, Noemi
Tuinstra, Jan
Westerhoff, Frank
Year of Publication: 
2015
Series/Report no.: 
BERG Working Paper Series 103
Abstract: 
In order to demonstrate that nonlinear tax systems may have surprising and potentially undesirable side effects, we develop an evolutionary market entry model in which firms decide on the basis of past profit opportunities whether or not to enter a competitive market. Our main focus is on the case of a proportional tax on positive profits. Such a piecewise-linear tax scheme induces a kink in the profit functions of firms' strategies, and may lead to abrupt changes in a market's dynamics, coexisting attractors and hysteresis problems. Since these phenomena can also be observed in more general models, a proper understanding of their basic mechanism may be helpful to explain the intricate behavior of many economic systems.
Subjects: 
market entry model
replicator dynamics
evolutionary fitness
nonlinear profit taxes
stability analysis
policy implications
JEL: 
D84
E30
H20
ISBN: 
978-3-943153-20-0
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.