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Social Efficiency of Market Entry Under Tax Policy

Author

Listed:
  • Basak Debasmita

    (Nottingham University Business School, Nottingham, UK)

  • Mukherjee Arijit

    (CESifo, Munich, Germany)

Abstract

We provide a new rationale for socially insufficient market entry. We show that if the shadow cost of public funds is sufficiently high, the number of firms under free entry can be socially insufficient if the tax policies are “time inconsistent”, so that the governments cannot commit to the tax policies before market entry of firms. Hence, strategic tax policies may provide a reason why policymakers should engage in pro-competitive policies. Lump-sum subsidies to firms may be a way to achieve that goal.

Suggested Citation

  • Basak Debasmita & Mukherjee Arijit, 2022. "Social Efficiency of Market Entry Under Tax Policy," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 22(3), pages 601-610, July.
    • Handle: RePEc:bpj:bejeap:v:22:y:2022:i:3:p:601-610:n:2
    DOI: 10.1515/bejeap-2022-0012
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    References listed on IDEAS

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    More about this item

    Keywords

    excessive market entry; insufficient market entry; tax policy;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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