Corporation Tax Asymmetries and Cartel Unity
This paper examines the impact of changing the extent to which tax losses are refunded to firms in a model of imperfect competition. It proposes a particular collusive equilibrium in a repeated oligopoly with homogeneous quantity-setting firms. The industry sustains tacit collusion by using credible and severe punishments of deviations. The analysis of the most collusive equilibrium with losses indicates that a tax policy which increases refunds reduces output, increases market price, and therefore strengthens tacit collusion. In addition, the policy increases government revenue. An increase in the corporation tax rate has similar effects. Copyright Kluwer Academic Publishers 2001
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Volume (Year): 8 (2001)
Issue (Month): 5 (November)
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References listed on IDEAS
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- Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
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- Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
- Val Eugene Lambson, 1987. "Optimal Penal Codes in Price-setting Supergames with Capacity Constraints," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 385-397.
- Mukesh Eswaran, 1997. "Cartel Unity over the Business Cycle," Canadian Journal of Economics, Canadian Economics Association, vol. 30(3), pages 644-672, August.
- Pierre-Pascal Gendron, 1996. "Corporation Tax Asymmetries: An Oligopolistic Supergame Analysis," Working Papers ecpap-96-04, University of Toronto, Department of Economics.
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