Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/156148
Authors: 
Goerke, Laszlo
Year of Publication: 
2016
Series/Report no.: 
IAAEU Discussion Paper Series in Economics 05/2016
Abstract: 
If an additional competitor reduces output per firm in a homogenous Cournot-oligopoly, market entry will be excessive. Taxes can correct the so-called business stealing externality. We investigate how evading a tax on operating profits affects the excessive entry prediction. Tax evasion raises the number of firms in market equilibrium and can alter their welfaremaximizing number. In consequence, evasion can aggravate or mitigate excessive entry. Which of these outcomes prevails is determined by the direct welfare consequences of tax evasion and the relationship between evasion and the tax base. We also determine conditions which imply that overall welfare declines with tax evasion.
Subjects: 
Endogenous Entry
Oligopoly
Tax Evasion
Welfare
JEL: 
D43
H26
L13
Document Type: 
Working Paper

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