Supply Response Under Proportional Profits Taxation
A striking result in the theory of the competitive firm under certainty is the proposition that a proportional profits tax (with full offsets for losses) will have no impact on optimal output. This result does not apply under uncertainty. It is shown that, under constant or increasing returns to scale, a proportional profits tax will yield an unambiguous expansion in output. The same result is shown to hold for the more general rank-dependent expected utility (RDEU) model.
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Volume (Year): 73 (1991)
Issue (Month): 1 ()
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