Corporate taxation, incumbency advantage and entry
It is the purpose of this paper to show that corporation tax may affect industrial structure. Analyzing the effects of corporation tax, we demonstrate that it tends to favour incumbents over entrants. We further show that the effect of this advantage on an incumbent's output depends on his profit or loss history. An incumbent with a past profit is likely to produce a greater output, thereby partially or fully crowding out an entrant's output. In contrast, an incumbent with a past loss is more likely to produce a smaller output, making entry easier.
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References listed on IDEAS
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- E. Appelbaum & E. Katz, 1987. "Asymmetric Taxation and the Theory of the Competitive Firm under Uncertainty," Canadian Journal of Economics, Canadian Economics Association, vol. 20(2), pages 357-69, May.
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