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Profit taxes and the growth of fringe firms

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Author Info
Marianne Vigneault
Jean-François Wen

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Abstract

In this paper we examine the optimal taxation of corporate profits in a multi-period limit pricing model where a dominant firm faces expansion by a competitive fringe. The optimal policy requires tax rates to vary both intertemporally and across firm sizes, and balances the benefit of fringe growth in eroding the market power of the dominant firm and the cost of displacing the dominant firm's output with the higher cost output of the fringe. The results are relevant for assessing the policy of giving preferential tax treatment to small firms, as practised by several OECD countries.

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File URL: http://economics.ca/cgi/xms?jab=v35n4/04.pdf
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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 35 (2002)
Issue (Month): 4 (November)
Pages: 717-736
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Handle: RePEc:cje:issued:v:35:y:2002:i:4:p:717-736

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Find related papers by JEL classification:
H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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