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Tax evasion and competition

Author

Listed:
  • Laszlo Goerke
  • Marco Runkel

Abstract

Using a Cournot oligopoly model with an endogenous number of firms and evasion of indirect taxes, this paper shows that more intense competition may have the negative side-effect of eroding tax revenues by increasing tax evasion. This will be the case if market entry costs decrease. A similar result will hold if marginal production costs fall and demand is either weakly concave or convex and inelastic. The desirable result of more competition, less evasion and higher tax revenues will be obtained if (a) marginal production costs fall and demand is convex and elastic or (b) the demand elasticity increases.
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Suggested Citation

  • Laszlo Goerke & Marco Runkel, 2011. "Tax evasion and competition," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(5), pages 711-736, November.
    • Handle: RePEc:bla:scotjp:v:58:y:2011:i:5:p:711-736
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    Cited by:

    1. Laszlo Goerke, 2021. "Tax Evasion by Firms," IAAEU Discussion Papers 202104, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    2. Luciano Fanti & Domenico Buccella, 2022. "Indirect Taxation, Tax Evasion and Profts," Hacienda Pública Española / Review of Public Economics, IEF, vol. 242(3), pages 91-109, September.
    3. Lumir Abdixhiku, Geoff Pugh, Iraj Hashi, 2018. "Business Tax Evasion in Transition Economies: A Cross-Country Panel Investigation," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 15(1), pages 11-36, June.
    4. Marjit Sugata & Thum Marcel & Seidel André, 2017. "Tax Evasion, Corruption and Tax Loopholes," German Economic Review, De Gruyter, vol. 18(3), pages 283-301, August.
    5. Gokalp, Omer N. & Lee, Seung-Hyun & Peng, Mike W., 2017. "Competition and corporate tax evasion: An institution-based view," Journal of World Business, Elsevier, vol. 52(2), pages 258-269.
    6. Domenico Buccella & Luciano Fanti & Luca Gori, 2024. "Competitive wages and tax evasion in a Cournot duopoly," Theory and Decision, Springer, vol. 97(3), pages 585-594, November.
    7. Besfamille, Martin & De Donder, Philippe & Lozachmeur, Jean-Marie, 2009. "The Political Economy of the (Weak) Enforcement of Sales Tax," CEPR Discussion Papers 7108, C.E.P.R. Discussion Papers.
    8. Baptiste Souillard, 2020. "Import Competition And Corporate Tax Avoidance: Evidence From The China Shock," Working Papers ECARES 2020-30, ULB -- Universite Libre de Bruxelles.
    9. Yi-Chung Hsu & Chien-Chiang Lee, 2016. "Factors Affecting Tax Evasion: Do Interest Rate And Regional Effects Matter?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(04), pages 1-23, September.
    10. André Seidel & Marcel Thum, 2016. "Tax Evasion, Corruption and Market Entry," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(4), pages 377-398, September.
    11. Luciano Fanti & Domenico Buccella, 2021. "Tax evasion and competition in a differentiated duopoly," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(3), pages 385-411, September.
    12. Martin Besfamille & Philippe De Donder & Jean Marie Lozachmeur, 2009. "Tax enforcement may decrease government revenue," Economics Bulletin, AccessEcon, vol. 29(4), pages 2665-2672.
    13. Ariel Herbert Fambeu, 2018. "L'entourage influence‐t‐il le comportement informel des entreprises au Cameroun?," African Development Review, African Development Bank, vol. 30(4), pages 478-489, December.
    14. Domenico Buccella & Luciano Fanti & Luca Gori, 2023. "Tax evasion in a Cournot duopoly with unions," Discussion Papers 2023/293, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    15. Damiani, Genaro Martín, 2024. "Indirect tax evasion, shadow economy, and the Laffer curve: A theoretical approach," MPRA Paper 121779, University Library of Munich, Germany.
    16. Laszlo Goerke, 2017. "Tax evasion in a Cournot oligopoly with endogenous entry," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(5), pages 754-779, September.
    17. Florian Baumann & Tim Friehe, 2017. "Design standards and technology adoption: welfare effects of increasing environmental fines when the number of firms is endogenous," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 19(2), pages 427-450, April.
    18. Luciano Fanti & Domenico Buccella, 2020. "Tax Evasion and Unions in a Cournot duopoly," Discussion Papers 2020/266, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    19. Baumann Florian & Friehe Tim, 2016. "Competitive Pressure and Corporate Crime," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 647-687, April.
    20. Florian Baumann & Tim Friehe, 2013. "Tax Evasion and Tacit Collusion," Public Finance Review, , vol. 41(5), pages 633-657, September.
    21. Raul Villafuerte-Segura & Eduardo Alvarado-Santos & Benjamin A. Itza-Ortiz, 2019. "Conditions for stable equilibrium in Cournot duopoly models with tax evasion and time delay," Papers 1905.02817, arXiv.org, revised Oct 2019.
    22. Bergbrant, Mikael C. & Hunter, Delroy M. & Kelly, Patrick J., 2018. "Rivals’ competitive activities, capital constraints, and firm growth," Journal of Banking & Finance, Elsevier, vol. 97(C), pages 87-108.
    23. James Alm & Yongzheng Liu & Kewei Zhang, 2019. "Financial constraints and firm tax evasion," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(1), pages 71-102, February.
    24. Raffaella Coppier & Elisabetta Michetti & Luisa Scaccia, 2022. "Industrial structure and evasion dynamics, is there any link?," Metroeconomica, Wiley Blackwell, vol. 73(4), pages 960-986, November.

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