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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.

Suggested Citation

  • Laszlo Goerke & Marco Runkel, 2007. "Tax Evasion and Competition," CESifo Working Paper Series 2104, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2104
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp2104.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. repec:spr:envpol:v:19:y:2017:i:2:d:10.1007_s10018-016-0166-1 is not listed on IDEAS
    5. 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.
    6. repec:bla:germec:v:18:y:2017:i:3:p:283-301 is not listed on IDEAS
    7. 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.
    8. Martin Besfamille & Philippe De Donder & Jean Marie Lozachmeur, 2009. "Tax enforcement may decrease government revenue," Economics Bulletin, AccessEcon, vol. 29(4), pages 2665-2672.
    9. repec:kap:itaxpf:v:24:y:2017:i:5:d:10.1007_s10797-016-9434-z is not listed on IDEAS
    10. 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.
    11. Sugata Marjit & André Seidel & Marcel Thum, 2017. "Tax Evasion, Corruption and Tax Loopholes," German Economic Review, Verein für Socialpolitik, vol. 18(3), pages 283-301, August.

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