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Taxation, industry integration and production efficiency

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  • Simone Moriconi

    () (Università Cattolica del Sacro Cuore
    Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)

Abstract

Taxes levied on production processes (e.g. VAT), are today a very important source of government revenues in developed economies. Theories of optimal taxation conclude that these taxes are detrimental to production efficiency, when firms operate in perfectly competitive markets. These theories draw on the neoclassical approach, which regards firms as single production units. The present paper investigates the effects of taxation on production efficiency, accounting for the organization of an industry. The model shows that a lump-sum tax does not have any effect on the organization of the industry, while a non lump-sum tax can be designed that induces an organizational change of the industry. The paper shows that the effect of this ”tax induced organizational change” on production efficiency ultimately depends on the characteristics of the market.

Suggested Citation

  • Simone Moriconi, 2016. "Taxation, industry integration and production efficiency," DISCE - Working Papers del Dipartimento di Economia e Finanza def043, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  • Handle: RePEc:ctc:serie1:def043
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    File URL: http://dipartimenti.unicatt.it/economia-finanza-def043.pdf
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    Cited by:

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    8. Russell Davidson & Andrea Monticini, 2018. "Improvements in Bootstrap Inference," DISCE - Working Papers del Dipartimento di Economia e Finanza def070, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
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    More about this item

    Keywords

    taxation; organizational change; vertical integration; and production efficiency.;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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