Tax Evasion in a Cournot Oligopoly with Endogenous Entry

No 6239, CESifo Working Paper Series from CESifo

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 welfare-maximizing 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.

Keywords: endogenous entry; oligopoly; tax evasion; welfare (search for similar items in EconPapers)
JEL-codes: D43 H26 L13 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Tax evasion in a Cournot oligopoly with endogenous entry (2017)
Working Paper: Tax Evasion in a Cournot Oligopoly with Endogenous Entry (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6239

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