Tax Evasion in a Cournot Oligopoly with Endogenous Entry

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 6239

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Tax Evasion and Avoidance ; Oligopoly and Other Imperfect Markets
• Subject: endogenous entry ; oligopoly ; tax evasion ; welfare

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Goerke, Laszlo
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/149326
• Last update: 10.03.2025, 11:44 AM CET